Correlation Between Microsoft and Health Care
Can any of the company-specific risk be diversified away by investing in both Microsoft and Health Care 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 Health Care into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Health Care Ultrasector, you can compare the effects of market volatilities on Microsoft and Health Care 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 Health Care. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Health Care.
Diversification Opportunities for Microsoft and Health Care
0.09 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Microsoft and Health is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Health Care Ultrasector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Health Care Ultrasector 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 Health Care. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Health Care Ultrasector has no effect on the direction of Microsoft i.e., Microsoft and Health Care go up and down completely randomly.
Pair Corralation between Microsoft and Health Care
Given the investment horizon of 90 days Microsoft is expected to generate 1.36 times more return on investment than Health Care. However, Microsoft is 1.36 times more volatile than Health Care Ultrasector. It trades about 0.08 of its potential returns per unit of risk. Health Care Ultrasector is currently generating about 0.01 per unit of risk. If you would invest 24,843 in Microsoft on September 2, 2024 and sell it today you would earn a total of 17,503 from holding Microsoft or generate 70.45% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Health Care Ultrasector
Performance |
| Timeline |
| Microsoft |
| Health Care Ultrasector |
Microsoft and Health Care Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Health Care
The main advantage of trading using opposite Microsoft and Health Care positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Health Care 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 Health Care will offset losses from the drop in Health Care's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Health Care vs. Gabelli Global Financial | Health Care vs. Blackrock Financial Institutions | Health Care vs. 1919 Financial Services | Health Care vs. Vanguard Financials Index |
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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.
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