Correlation Between Microsoft and Live Oak
Can any of the company-specific risk be diversified away by investing in both Microsoft and Live Oak 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 Live Oak into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Live Oak Bancshares, you can compare the effects of market volatilities on Microsoft and Live Oak 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 Live Oak. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Live Oak.
Diversification Opportunities for Microsoft and Live Oak
Significant diversification
The 3 months correlation between Microsoft and Live is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Live Oak Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Live Oak Bancshares 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 Live Oak. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Live Oak Bancshares has no effect on the direction of Microsoft i.e., Microsoft and Live Oak go up and down completely randomly.
Pair Corralation between Microsoft and Live Oak
Given the investment horizon of 90 days Microsoft is expected to generate 0.53 times more return on investment than Live Oak. However, Microsoft is 1.87 times less risky than Live Oak. It trades about -0.04 of its potential returns per unit of risk. Live Oak Bancshares is currently generating about -0.07 per unit of risk. If you would invest 42,456 in Microsoft on November 9, 2024 and sell it today you would lose (874.00) from holding Microsoft or give up 2.06% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Live Oak Bancshares
Performance |
| Timeline |
| Microsoft |
| Live Oak Bancshares |
Microsoft and Live Oak Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Live Oak
The main advantage of trading using opposite Microsoft and Live Oak positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Live Oak 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 Live Oak will offset losses from the drop in Live Oak's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Adobe Systems Incorporated | Microsoft vs. Crowdstrike Holdings |
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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