Correlation Between Microsoft and Kadant
Can any of the company-specific risk be diversified away by investing in both Microsoft and Kadant 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 Kadant into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Kadant Inc, you can compare the effects of market volatilities on Microsoft and Kadant 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 Kadant. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Kadant.
Diversification Opportunities for Microsoft and Kadant
Significant diversification
The 3 months correlation between Microsoft and Kadant is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Kadant Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kadant Inc 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 Kadant. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kadant Inc has no effect on the direction of Microsoft i.e., Microsoft and Kadant go up and down completely randomly.
Pair Corralation between Microsoft and Kadant
Given the investment horizon of 90 days Microsoft is expected to generate 5.12 times less return on investment than Kadant. But when comparing it to its historical volatility, Microsoft is 1.29 times less risky than Kadant. It trades about 0.02 of its potential returns per unit of risk. Kadant Inc is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 34,306 in Kadant Inc on November 1, 2024 and sell it today you would earn a total of 3,315 from holding Kadant Inc or generate 9.66% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Kadant Inc
Performance |
| Timeline |
| Microsoft |
| Kadant Inc |
Microsoft and Kadant Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Kadant
The main advantage of trading using opposite Microsoft and Kadant positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Kadant 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 Kadant will offset losses from the drop in Kadant's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Adobe Systems Incorporated | Microsoft vs. Crowdstrike Holdings | Microsoft vs. Zscaler |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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