Correlation Between Microsoft and Midcap Growth
Can any of the company-specific risk be diversified away by investing in both Microsoft and Midcap Growth 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 Midcap Growth into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Midcap Growth Fund, you can compare the effects of market volatilities on Microsoft and Midcap Growth 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 Midcap Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Midcap Growth.
Diversification Opportunities for Microsoft and Midcap Growth
0.13 | Correlation Coefficient |
Average diversification
The 3 months correlation between Microsoft and Midcap is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Midcap Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Midcap Growth 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 Midcap Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Midcap Growth has no effect on the direction of Microsoft i.e., Microsoft and Midcap Growth go up and down completely randomly.
Pair Corralation between Microsoft and Midcap Growth
Given the investment horizon of 90 days Microsoft is expected to generate 1.25 times more return on investment than Midcap Growth. However, Microsoft is 1.25 times more volatile than Midcap Growth Fund. It trades about 0.1 of its potential returns per unit of risk. Midcap Growth Fund is currently generating about 0.08 per unit of risk. If you would invest 22,345 in Microsoft on August 31, 2024 and sell it today you would earn a total of 20,001 from holding Microsoft or generate 89.51% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 99.79% |
| Values | Daily Returns |
Microsoft vs. Midcap Growth Fund
Performance |
| Timeline |
| Microsoft |
| Midcap Growth |
Microsoft and Midcap Growth Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Midcap Growth
The main advantage of trading using opposite Microsoft and Midcap Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Midcap Growth 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 Midcap Growth will offset losses from the drop in Midcap Growth's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Midcap Growth vs. Small Cap Stock | Midcap Growth vs. Growth Opportunities Fund | Midcap Growth vs. T Rowe Price | Midcap Growth vs. Ab Value Fund |
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 Transaction History module to view history of all your transactions and understand their impact on performance.
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