Correlation Between Microsoft and Kone Oyj
Can any of the company-specific risk be diversified away by investing in both Microsoft and Kone Oyj 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 Kone Oyj into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Kone Oyj ADR, you can compare the effects of market volatilities on Microsoft and Kone Oyj 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 Kone Oyj. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Kone Oyj.
Diversification Opportunities for Microsoft and Kone Oyj
Modest diversification
The 3 months correlation between Microsoft and Kone is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Kone Oyj ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kone Oyj ADR 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 Kone Oyj. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kone Oyj ADR has no effect on the direction of Microsoft i.e., Microsoft and Kone Oyj go up and down completely randomly.
Pair Corralation between Microsoft and Kone Oyj
Given the investment horizon of 90 days Microsoft is expected to generate 1.09 times more return on investment than Kone Oyj. However, Microsoft is 1.09 times more volatile than Kone Oyj ADR. It trades about -0.04 of its potential returns per unit of risk. Kone Oyj ADR is currently generating about -0.24 per unit of risk. If you would invest 42,388 in Microsoft on August 25, 2024 and sell it today you would lose (688.00) from holding Microsoft or give up 1.62% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Kone Oyj ADR
Performance |
| Timeline |
| Microsoft |
| Kone Oyj ADR |
Microsoft and Kone Oyj Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Kone Oyj
The main advantage of trading using opposite Microsoft and Kone Oyj positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Kone Oyj 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 Kone Oyj will offset losses from the drop in Kone Oyj'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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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