Correlation Between Microsoft and Lord Abbett
Can any of the company-specific risk be diversified away by investing in both Microsoft and Lord Abbett 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 Lord Abbett into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Lord Abbett Growth, you can compare the effects of market volatilities on Microsoft and Lord Abbett 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 Lord Abbett. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Lord Abbett.
Diversification Opportunities for Microsoft and Lord Abbett
0.1 | Correlation Coefficient |
Average diversification
The 3 months correlation between Microsoft and Lord is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Lord Abbett Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lord Abbett Growth 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 Lord Abbett. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lord Abbett Growth has no effect on the direction of Microsoft i.e., Microsoft and Lord Abbett go up and down completely randomly.
Pair Corralation between Microsoft and Lord Abbett
Given the investment horizon of 90 days Microsoft is expected to generate 3.29 times less return on investment than Lord Abbett. But when comparing it to its historical volatility, Microsoft is 1.1 times less risky than Lord Abbett. It trades about 0.04 of its potential returns per unit of risk. Lord Abbett Growth is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 2,277 in Lord Abbett Growth on August 26, 2024 and sell it today you would earn a total of 1,051 from holding Lord Abbett Growth or generate 46.16% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Lord Abbett Growth
Performance |
| Timeline |
| Microsoft |
| Lord Abbett Growth |
Microsoft and Lord Abbett Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Lord Abbett
The main advantage of trading using opposite Microsoft and Lord Abbett positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Lord Abbett 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 Lord Abbett will offset losses from the drop in Lord Abbett'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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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