Correlation Between Microsoft and Howmet Aerospace
Can any of the company-specific risk be diversified away by investing in both Microsoft and Howmet Aerospace 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 Howmet Aerospace into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Howmet Aerospace, you can compare the effects of market volatilities on Microsoft and Howmet Aerospace 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 Howmet Aerospace. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Howmet Aerospace.
Diversification Opportunities for Microsoft and Howmet Aerospace
0.2 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Microsoft and Howmet is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Howmet Aerospace in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Howmet Aerospace 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 Howmet Aerospace. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Howmet Aerospace has no effect on the direction of Microsoft i.e., Microsoft and Howmet Aerospace go up and down completely randomly.
Pair Corralation between Microsoft and Howmet Aerospace
Given the investment horizon of 90 days Microsoft is expected to generate 0.78 times more return on investment than Howmet Aerospace. However, Microsoft is 1.29 times less risky than Howmet Aerospace. It trades about -0.04 of its potential returns per unit of risk. Howmet Aerospace is currently generating about -0.18 per unit of risk. If you would invest 43,167 in Microsoft on August 31, 2024 and sell it today you would lose (821.00) from holding Microsoft or give up 1.9% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 86.96% |
| Values | Daily Returns |
Microsoft vs. Howmet Aerospace
Performance |
| Timeline |
| Microsoft |
| Howmet Aerospace |
Microsoft and Howmet Aerospace Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Howmet Aerospace
The main advantage of trading using opposite Microsoft and Howmet Aerospace positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Howmet Aerospace 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 Howmet Aerospace will offset losses from the drop in Howmet Aerospace's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Howmet Aerospace vs. E I du | Howmet Aerospace vs. E I du | Howmet Aerospace vs. Bank of America | Howmet Aerospace vs. Compass Diversified |
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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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