Correlation Between Microsoft and LRN
Can any of the company-specific risk be diversified away by investing in both Microsoft and LRN 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 LRN into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and LRN, you can compare the effects of market volatilities on Microsoft and LRN 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 LRN. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and LRN.
Diversification Opportunities for Microsoft and LRN
Very weak diversification
The 3 months correlation between Microsoft and LRN is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and LRN in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LRN 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 LRN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LRN has no effect on the direction of Microsoft i.e., Microsoft and LRN go up and down completely randomly.
Pair Corralation between Microsoft and LRN
Given the investment horizon of 90 days Microsoft is expected to generate 0.18 times more return on investment than LRN. However, Microsoft is 5.7 times less risky than LRN. It trades about -0.11 of its potential returns per unit of risk. LRN is currently generating about -0.16 per unit of risk. If you would invest 42,903 in Microsoft on November 18, 2024 and sell it today you would lose (2,060) from holding Microsoft or give up 4.8% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
Microsoft vs. LRN
Performance |
| Timeline |
| Microsoft |
| LRN |
Microsoft and LRN Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and LRN
The main advantage of trading using opposite Microsoft and LRN positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, LRN 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 LRN will offset losses from the drop in LRN'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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.
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