Correlation Between Microsoft and Kava
Can any of the company-specific risk be diversified away by investing in both Microsoft and Kava 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 Kava into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Kava, you can compare the effects of market volatilities on Microsoft and Kava 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 Kava. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Kava.
Diversification Opportunities for Microsoft and Kava
Weak diversification
The 3 months correlation between Microsoft and Kava is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Kava in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kava 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 Kava. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kava has no effect on the direction of Microsoft i.e., Microsoft and Kava go up and down completely randomly.
Pair Corralation between Microsoft and Kava
Given the investment horizon of 90 days Microsoft is expected to generate 0.26 times more return on investment than Kava. However, Microsoft is 3.92 times less risky than Kava. It trades about 0.08 of its potential returns per unit of risk. Kava is currently generating about -0.01 per unit of risk. If you would invest 25,090 in Microsoft on August 23, 2024 and sell it today you would earn a total of 16,197 from holding Microsoft or generate 64.56% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 60.28% |
| Values | Daily Returns |
Microsoft vs. Kava
Performance |
| Timeline |
| Microsoft |
| Kava |
Microsoft and Kava Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Kava
The main advantage of trading using opposite Microsoft and Kava positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Kava 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 Kava will offset losses from the drop in Kava's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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