Correlation Between Microsoft and Otter Creek
Can any of the company-specific risk be diversified away by investing in both Microsoft and Otter Creek 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 Otter Creek into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Otter Creek Longshort, you can compare the effects of market volatilities on Microsoft and Otter Creek 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 Otter Creek. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Otter Creek.
Diversification Opportunities for Microsoft and Otter Creek
0.25 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Microsoft and Otter is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Otter Creek Longshort in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Otter Creek Longshort 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 Otter Creek. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Otter Creek Longshort has no effect on the direction of Microsoft i.e., Microsoft and Otter Creek go up and down completely randomly.
Pair Corralation between Microsoft and Otter Creek
Given the investment horizon of 90 days Microsoft is expected to under-perform the Otter Creek. In addition to that, Microsoft is 2.15 times more volatile than Otter Creek Longshort. It trades about -0.06 of its total potential returns per unit of risk. Otter Creek Longshort is currently generating about 0.03 per unit of volatility. If you would invest 1,526 in Otter Creek Longshort on August 26, 2024 and sell it today you would earn a total of 7.00 from holding Otter Creek Longshort or generate 0.46% 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. Otter Creek Longshort
Performance |
| Timeline |
| Microsoft |
| Otter Creek Longshort |
Microsoft and Otter Creek Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Otter Creek
The main advantage of trading using opposite Microsoft and Otter Creek positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Otter Creek 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 Otter Creek will offset losses from the drop in Otter Creek's 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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