Correlation Between Microsoft and Lyft
Can any of the company-specific risk be diversified away by investing in both Microsoft and Lyft 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 Lyft into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Lyft Inc, you can compare the effects of market volatilities on Microsoft and Lyft 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 Lyft. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Lyft.
Diversification Opportunities for Microsoft and Lyft
Average diversification
The 3 months correlation between Microsoft and Lyft is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Lyft Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lyft Inc 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 Lyft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lyft Inc has no effect on the direction of Microsoft i.e., Microsoft and Lyft go up and down completely randomly.
Pair Corralation between Microsoft and Lyft
Given the investment horizon of 90 days Microsoft is expected to under-perform the Lyft. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 3.41 times less risky than Lyft. The stock trades about -0.02 of its potential returns per unit of risk. The Lyft Inc is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest 1,140 in Lyft Inc on August 30, 2024 and sell it today you would earn a total of 505.00 from holding Lyft Inc or generate 44.3% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Lyft Inc
Performance |
| Timeline |
| Microsoft |
| Lyft Inc |
Microsoft and Lyft Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Lyft
The main advantage of trading using opposite Microsoft and Lyft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Lyft 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 Lyft will offset losses from the drop in Lyft's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Lyft vs. MGIC INVESTMENT | Lyft vs. SANOK RUBBER ZY | Lyft vs. Hyster Yale Materials Handling | Lyft vs. Virtus Investment Partners |
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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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