Correlation Between Microsoft and Honest
Can any of the company-specific risk be diversified away by investing in both Microsoft and Honest 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 Honest into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Honest Company, you can compare the effects of market volatilities on Microsoft and Honest 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 Honest. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Honest.
Diversification Opportunities for Microsoft and Honest
Good diversification
The 3 months correlation between Microsoft and Honest is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Honest Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Honest Company 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 Honest. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Honest Company has no effect on the direction of Microsoft i.e., Microsoft and Honest go up and down completely randomly.
Pair Corralation between Microsoft and Honest
Given the investment horizon of 90 days Microsoft is expected to generate 2.79 times less return on investment than Honest. But when comparing it to its historical volatility, Microsoft is 3.36 times less risky than Honest. It trades about 0.08 of its potential returns per unit of risk. Honest Company is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 281.00 in Honest Company on August 28, 2024 and sell it today you would earn a total of 576.00 from holding Honest Company or generate 204.98% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Honest Company
Performance |
| Timeline |
| Microsoft |
| Honest Company |
Microsoft and Honest Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Honest
The main advantage of trading using opposite Microsoft and Honest positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Honest 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 Honest will offset losses from the drop in Honest's long position.| Microsoft vs. GigaCloud Technology Class | Microsoft vs. Arqit Quantum | Microsoft vs. Cemtrex | Microsoft vs. Paysafe |
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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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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