Correlation Between Microsoft and Pakistan State
Can any of the company-specific risk be diversified away by investing in both Microsoft and Pakistan State 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 Pakistan State into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Pakistan State Oil, you can compare the effects of market volatilities on Microsoft and Pakistan State 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 Pakistan State. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Pakistan State.
Diversification Opportunities for Microsoft and Pakistan State
-0.06 | Correlation Coefficient |
Good diversification
The 3 months correlation between Microsoft and Pakistan is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Pakistan State Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pakistan State Oil 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 Pakistan State. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pakistan State Oil has no effect on the direction of Microsoft i.e., Microsoft and Pakistan State go up and down completely randomly.
Pair Corralation between Microsoft and Pakistan State
Given the investment horizon of 90 days Microsoft is expected to generate 17.44 times less return on investment than Pakistan State. But when comparing it to its historical volatility, Microsoft is 1.81 times less risky than Pakistan State. It trades about 0.02 of its potential returns per unit of risk. Pakistan State Oil is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest 15,960 in Pakistan State Oil on August 31, 2024 and sell it today you would earn a total of 13,313 from holding Pakistan State Oil or generate 83.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 96.85% |
| Values | Daily Returns |
Microsoft vs. Pakistan State Oil
Performance |
| Timeline |
| Microsoft |
| Pakistan State Oil |
Microsoft and Pakistan State Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Pakistan State
The main advantage of trading using opposite Microsoft and Pakistan State positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Pakistan State 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 Pakistan State will offset losses from the drop in Pakistan State's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
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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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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