Correlation Between Microsoft and Highland Small-cap
Can any of the company-specific risk be diversified away by investing in both Microsoft and Highland Small-cap 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 Highland Small-cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Highland Small Cap Equity, you can compare the effects of market volatilities on Microsoft and Highland Small-cap 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 Highland Small-cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Highland Small-cap.
Diversification Opportunities for Microsoft and Highland Small-cap
0.07 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Microsoft and Highland is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Highland Small Cap Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Highland Small Cap 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 Highland Small-cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Highland Small Cap has no effect on the direction of Microsoft i.e., Microsoft and Highland Small-cap go up and down completely randomly.
Pair Corralation between Microsoft and Highland Small-cap
Given the investment horizon of 90 days Microsoft is expected to generate 1.09 times less return on investment than Highland Small-cap. In addition to that, Microsoft is 1.59 times more volatile than Highland Small Cap Equity. It trades about 0.19 of its total potential returns per unit of risk. Highland Small Cap Equity is currently generating about 0.32 per unit of volatility. If you would invest 660.00 in Highland Small Cap Equity on September 1, 2024 and sell it today you would earn a total of 34.00 from holding Highland Small Cap Equity or generate 5.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Microsoft vs. Highland Small Cap Equity
Performance |
| Timeline |
| Microsoft |
| Highland Small Cap |
Microsoft and Highland Small-cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Highland Small-cap
The main advantage of trading using opposite Microsoft and Highland Small-cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Highland Small-cap 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 Highland Small-cap will offset losses from the drop in Highland Small-cap's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
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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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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