Correlation Between Microsoft and News
Can any of the company-specific risk be diversified away by investing in both Microsoft and News 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 News into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and News Corporation, you can compare the effects of market volatilities on Microsoft and News 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 News. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and News.
Diversification Opportunities for Microsoft and News
Good diversification
The 3 months correlation between Microsoft and News is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and News Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on News 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 News. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of News has no effect on the direction of Microsoft i.e., Microsoft and News go up and down completely randomly.
Pair Corralation between Microsoft and News
Given the investment horizon of 90 days Microsoft is expected to generate 2.25 times less return on investment than News. But when comparing it to its historical volatility, Microsoft is 1.34 times less risky than News. It trades about 0.19 of its potential returns per unit of risk. News Corporation is currently generating about 0.31 of returns per unit of risk over similar time horizon. If you would invest 2,480 in News Corporation on September 1, 2024 and sell it today you would earn a total of 280.00 from holding News Corporation or generate 11.29% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 91.3% |
| Values | Daily Returns |
Microsoft vs. News Corp.
Performance |
| Timeline |
| Microsoft |
| News |
Microsoft and News Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and News
The main advantage of trading using opposite Microsoft and News positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, News 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 News will offset losses from the drop in News' long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| News vs. Superior Plus Corp | News vs. NMI Holdings | News vs. Origin Agritech | News vs. SIVERS SEMICONDUCTORS AB |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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