Correlation Between Microsoft and Jensen Quality
Can any of the company-specific risk be diversified away by investing in both Microsoft and Jensen Quality 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 Jensen Quality into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Jensen Quality Value, you can compare the effects of market volatilities on Microsoft and Jensen Quality 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 Jensen Quality. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Jensen Quality.
Diversification Opportunities for Microsoft and Jensen Quality
0.28 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Microsoft and Jensen is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Jensen Quality Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jensen Quality Value 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 Jensen Quality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jensen Quality Value has no effect on the direction of Microsoft i.e., Microsoft and Jensen Quality go up and down completely randomly.
Pair Corralation between Microsoft and Jensen Quality
Given the investment horizon of 90 days Microsoft is expected to generate 1.6 times more return on investment than Jensen Quality. However, Microsoft is 1.6 times more volatile than Jensen Quality Value. It trades about 0.08 of its potential returns per unit of risk. Jensen Quality Value is currently generating about 0.05 per unit of risk. If you would invest 24,616 in Microsoft on August 26, 2024 and sell it today you would earn a total of 17,084 from holding Microsoft or generate 69.4% 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. Jensen Quality Value
Performance |
| Timeline |
| Microsoft |
| Jensen Quality Value |
Microsoft and Jensen Quality Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Jensen Quality
The main advantage of trading using opposite Microsoft and Jensen Quality positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Jensen Quality 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 Jensen Quality will offset losses from the drop in Jensen Quality's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Jensen Quality vs. The Jensen Portfolio | Jensen Quality vs. The Jensen Portfolio | Jensen Quality vs. The Jensen Portfolio | Jensen Quality vs. The Jensen Portfolio |
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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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