Correlation Between Microsoft and Cloudflare
Can any of the company-specific risk be diversified away by investing in both Microsoft and Cloudflare 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 Cloudflare into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Cloudflare, you can compare the effects of market volatilities on Microsoft and Cloudflare 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 Cloudflare. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Cloudflare.
Diversification Opportunities for Microsoft and Cloudflare
0.09 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Microsoft and Cloudflare is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Cloudflare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cloudflare 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 Cloudflare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cloudflare has no effect on the direction of Microsoft i.e., Microsoft and Cloudflare go up and down completely randomly.
Pair Corralation between Microsoft and Cloudflare
Given the investment horizon of 90 days Microsoft is expected to generate 1.98 times less return on investment than Cloudflare. But when comparing it to its historical volatility, Microsoft is 2.49 times less risky than Cloudflare. It trades about 0.08 of its potential returns per unit of risk. Cloudflare is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 4,837 in Cloudflare on August 23, 2024 and sell it today you would earn a total of 5,584 from holding Cloudflare or generate 115.44% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Cloudflare
Performance |
| Timeline |
| Microsoft |
| Cloudflare |
Microsoft and Cloudflare Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Cloudflare
The main advantage of trading using opposite Microsoft and Cloudflare positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Cloudflare 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 Cloudflare will offset losses from the drop in Cloudflare's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Cloudflare vs. Palo Alto Networks | Cloudflare vs. Zscaler | Cloudflare vs. Okta Inc | Cloudflare vs. Adobe Systems Incorporated |
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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.
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