Correlation Between Microsoft and Smallcap Value
Can any of the company-specific risk be diversified away by investing in both Microsoft and Smallcap Value 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 Smallcap Value into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Smallcap Value Fund, you can compare the effects of market volatilities on Microsoft and Smallcap Value 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 Smallcap Value. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Smallcap Value.
Diversification Opportunities for Microsoft and Smallcap Value
0.17 | Correlation Coefficient |
Average diversification
The 3 months correlation between Microsoft and Smallcap is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Smallcap Value Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smallcap Value 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 Smallcap Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smallcap Value has no effect on the direction of Microsoft i.e., Microsoft and Smallcap Value go up and down completely randomly.
Pair Corralation between Microsoft and Smallcap Value
Given the investment horizon of 90 days Microsoft is expected to generate 1.07 times more return on investment than Smallcap Value. However, Microsoft is 1.07 times more volatile than Smallcap Value Fund. It trades about 0.06 of its potential returns per unit of risk. Smallcap Value Fund is currently generating about 0.05 per unit of risk. If you would invest 32,151 in Microsoft on August 31, 2024 and sell it today you would earn a total of 10,195 from holding Microsoft or generate 31.71% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 99.73% |
| Values | Daily Returns |
Microsoft vs. Smallcap Value Fund
Performance |
| Timeline |
| Microsoft |
| Smallcap Value |
Microsoft and Smallcap Value Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Smallcap Value
The main advantage of trading using opposite Microsoft and Smallcap Value positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Smallcap Value 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 Smallcap Value will offset losses from the drop in Smallcap Value's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Smallcap Value vs. Vanguard Small Cap Value | Smallcap Value vs. Vanguard Small Cap Value | Smallcap Value vs. Us Targeted Value | Smallcap Value vs. Undiscovered Managers Behavioral |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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