Correlation Between Microsoft and Home Product
Can any of the company-specific risk be diversified away by investing in both Microsoft and Home Product 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 Home Product into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Home Product Center, you can compare the effects of market volatilities on Microsoft and Home Product 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 Home Product. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Home Product.
Diversification Opportunities for Microsoft and Home Product
0.33 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Microsoft and Home is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Home Product Center in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Product Center 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 Home Product. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Product Center has no effect on the direction of Microsoft i.e., Microsoft and Home Product go up and down completely randomly.
Pair Corralation between Microsoft and Home Product
Given the investment horizon of 90 days Microsoft is expected to under-perform the Home Product. In addition to that, Microsoft is 1.07 times more volatile than Home Product Center. It trades about -0.04 of its total potential returns per unit of risk. Home Product Center is currently generating about 0.05 per unit of volatility. If you would invest 930.00 in Home Product Center on August 31, 2024 and sell it today you would earn a total of 15.00 from holding Home Product Center or generate 1.61% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Home Product Center
Performance |
| Timeline |
| Microsoft |
| Home Product Center |
Microsoft and Home Product Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Home Product
The main advantage of trading using opposite Microsoft and Home Product positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Home Product 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 Home Product will offset losses from the drop in Home Product's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Home Product vs. CP ALL Public | Home Product vs. Bangkok Dusit Medical | Home Product vs. Central Pattana Public | Home Product vs. Advanced Info Service |
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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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