Correlation Between Microsoft and First Trust
Can any of the company-specific risk be diversified away by investing in both Microsoft and First Trust 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 First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and First Trust NASDAQ, you can compare the effects of market volatilities on Microsoft and First Trust 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 First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and First Trust.
Diversification Opportunities for Microsoft and First Trust
0.03 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Microsoft and First is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and First Trust NASDAQ in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust NASDAQ 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 First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust NASDAQ has no effect on the direction of Microsoft i.e., Microsoft and First Trust go up and down completely randomly.
Pair Corralation between Microsoft and First Trust
Given the investment horizon of 90 days Microsoft is expected to under-perform the First Trust. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.86 times less risky than First Trust. The stock trades about -0.04 of its potential returns per unit of risk. The First Trust NASDAQ is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest 5,499 in First Trust NASDAQ on August 28, 2024 and sell it today you would earn a total of 795.00 from holding First Trust NASDAQ or generate 14.46% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. First Trust NASDAQ
Performance |
| Timeline |
| Microsoft |
| First Trust NASDAQ |
Microsoft and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and First Trust
The main advantage of trading using opposite Microsoft and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, First Trust 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 First Trust will offset losses from the drop in First Trust's long position.| Microsoft vs. GigaCloud Technology Class | Microsoft vs. Arqit Quantum | Microsoft vs. Cemtrex | Microsoft vs. Paysafe |
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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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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