Correlation Between Microsoft and Pear Tree
Can any of the company-specific risk be diversified away by investing in both Microsoft and Pear Tree 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 Pear Tree into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Pear Tree Polaris, you can compare the effects of market volatilities on Microsoft and Pear Tree 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 Pear Tree. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Pear Tree.
Diversification Opportunities for Microsoft and Pear Tree
Average diversification
The 3 months correlation between Microsoft and Pear is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Pear Tree Polaris in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pear Tree Polaris 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 Pear Tree. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pear Tree Polaris has no effect on the direction of Microsoft i.e., Microsoft and Pear Tree go up and down completely randomly.
Pair Corralation between Microsoft and Pear Tree
Given the investment horizon of 90 days Microsoft is expected to generate 1.68 times more return on investment than Pear Tree. However, Microsoft is 1.68 times more volatile than Pear Tree Polaris. It trades about 0.05 of its potential returns per unit of risk. Pear Tree Polaris is currently generating about 0.03 per unit of risk. If you would invest 36,976 in Microsoft on August 31, 2024 and sell it today you would earn a total of 5,323 from holding Microsoft or generate 14.4% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Pear Tree Polaris
Performance |
| Timeline |
| Microsoft |
| Pear Tree Polaris |
Microsoft and Pear Tree Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Pear Tree
The main advantage of trading using opposite Microsoft and Pear Tree positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Pear Tree 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 Pear Tree will offset losses from the drop in Pear Tree's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Pear Tree vs. Abr 7525 Volatility | Pear Tree vs. Balanced Fund Investor | Pear Tree vs. Western Asset Municipal | Pear Tree vs. T Rowe Price |
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 Commodity Directory module to find actively traded commodities issued by global exchanges.
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