Correlation Between Microsoft and Griffon
Can any of the company-specific risk be diversified away by investing in both Microsoft and Griffon at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Microsoft and Griffon into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Griffon, you can compare the effects of market volatilities on Microsoft and Griffon and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Microsoft with a short position of Griffon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Griffon.
Diversification Opportunities for Microsoft and Griffon
Very weak diversification
The 3 months correlation between Microsoft and Griffon is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Griffon in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Griffon and Microsoft is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Microsoft are associated (or correlated) with Griffon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Griffon has no effect on the direction of Microsoft i.e., Microsoft and Griffon go up and down completely randomly.
Pair Corralation between Microsoft and Griffon
Given the investment horizon of 90 days Microsoft is expected to under-perform the Griffon. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.97 times less risky than Griffon. The stock trades about -0.02 of its potential returns per unit of risk. The Griffon is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 6,185 in Griffon on November 7, 2024 and sell it today you would earn a total of 1,315 from holding Griffon or generate 21.26% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 98.31% |
| Values | Daily Returns |
Microsoft vs. Griffon
Performance |
| Timeline |
| Microsoft |
| Griffon |
Microsoft and Griffon Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Griffon
The main advantage of trading using opposite Microsoft and Griffon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Griffon can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Griffon will offset losses from the drop in Griffon's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Adobe Systems Incorporated | Microsoft vs. Crowdstrike Holdings |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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