Correlation Between Microsoft and Lumen Technologies
Can any of the company-specific risk be diversified away by investing in both Microsoft and Lumen Technologies 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 Lumen Technologies into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Lumen Technologies, you can compare the effects of market volatilities on Microsoft and Lumen Technologies 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 Lumen Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Lumen Technologies.
Diversification Opportunities for Microsoft and Lumen Technologies
0.21 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Microsoft and Lumen is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Lumen Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lumen Technologies 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 Lumen Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lumen Technologies has no effect on the direction of Microsoft i.e., Microsoft and Lumen Technologies go up and down completely randomly.
Pair Corralation between Microsoft and Lumen Technologies
Given the investment horizon of 90 days Microsoft is expected to generate 76.12 times less return on investment than Lumen Technologies. But when comparing it to its historical volatility, Microsoft is 7.22 times less risky than Lumen Technologies. It trades about 0.01 of its potential returns per unit of risk. Lumen Technologies is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 162.00 in Lumen Technologies on August 27, 2024 and sell it today you would earn a total of 626.00 from holding Lumen Technologies or generate 386.42% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Lumen Technologies
Performance |
| Timeline |
| Microsoft |
| Lumen Technologies |
Microsoft and Lumen Technologies Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Lumen Technologies
The main advantage of trading using opposite Microsoft and Lumen Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Lumen Technologies 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 Lumen Technologies will offset losses from the drop in Lumen Technologies' long position.| Microsoft vs. GigaCloud Technology Class | Microsoft vs. Arqit Quantum | Microsoft vs. Cemtrex | Microsoft vs. Rapid7 Inc |
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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 Stocks Directory module to find actively traded stocks across global markets.
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