Correlation Between Microsoft and Laurentian Bank
Can any of the company-specific risk be diversified away by investing in both Microsoft and Laurentian Bank 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 Laurentian Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Laurentian Bank, you can compare the effects of market volatilities on Microsoft and Laurentian Bank 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 Laurentian Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Laurentian Bank.
Diversification Opportunities for Microsoft and Laurentian Bank
0.09 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Microsoft and Laurentian is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Laurentian Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Laurentian Bank 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 Laurentian Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Laurentian Bank has no effect on the direction of Microsoft i.e., Microsoft and Laurentian Bank go up and down completely randomly.
Pair Corralation between Microsoft and Laurentian Bank
Given the investment horizon of 90 days Microsoft is expected to under-perform the Laurentian Bank. In addition to that, Microsoft is 1.47 times more volatile than Laurentian Bank. It trades about -0.06 of its total potential returns per unit of risk. Laurentian Bank is currently generating about 0.26 per unit of volatility. If you would invest 2,670 in Laurentian Bank on August 24, 2024 and sell it today you would earn a total of 180.00 from holding Laurentian Bank or generate 6.74% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Laurentian Bank
Performance |
| Timeline |
| Microsoft |
| Laurentian Bank |
Microsoft and Laurentian Bank Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Laurentian Bank
The main advantage of trading using opposite Microsoft and Laurentian Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Laurentian Bank 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 Laurentian Bank will offset losses from the drop in Laurentian Bank'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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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