Correlation Between Microsoft and Capital World
Can any of the company-specific risk be diversified away by investing in both Microsoft and Capital World 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 Capital World into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Capital World Bond, you can compare the effects of market volatilities on Microsoft and Capital World 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 Capital World. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Capital World.
Diversification Opportunities for Microsoft and Capital World
0.22 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Microsoft and Capital is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Capital World Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital World Bond 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 Capital World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital World Bond has no effect on the direction of Microsoft i.e., Microsoft and Capital World go up and down completely randomly.
Pair Corralation between Microsoft and Capital World
Given the investment horizon of 90 days Microsoft is expected to generate 3.23 times more return on investment than Capital World. However, Microsoft is 3.23 times more volatile than Capital World Bond. It trades about 0.05 of its potential returns per unit of risk. Capital World Bond is currently generating about 0.03 per unit of risk. If you would invest 36,820 in Microsoft on September 2, 2024 and sell it today you would earn a total of 5,526 from holding Microsoft or generate 15.01% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Capital World Bond
Performance |
| Timeline |
| Microsoft |
| Capital World Bond |
Microsoft and Capital World Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Capital World
The main advantage of trading using opposite Microsoft and Capital World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Capital World 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 Capital World will offset losses from the drop in Capital World's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Capital World vs. Income Fund Of | Capital World vs. New World Fund | Capital World vs. American Mutual Fund | Capital World vs. American Mutual 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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