Correlation Between Microsoft and Equity Growth
Can any of the company-specific risk be diversified away by investing in both Microsoft and Equity Growth 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 Equity Growth into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Equity Growth Strategy, you can compare the effects of market volatilities on Microsoft and Equity Growth 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 Equity Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Equity Growth.
Diversification Opportunities for Microsoft and Equity Growth
0.38 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Microsoft and Equity is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Equity Growth Strategy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Growth Strategy 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 Equity Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Growth Strategy has no effect on the direction of Microsoft i.e., Microsoft and Equity Growth go up and down completely randomly.
Pair Corralation between Microsoft and Equity Growth
Given the investment horizon of 90 days Microsoft is expected to generate 1.98 times more return on investment than Equity Growth. However, Microsoft is 1.98 times more volatile than Equity Growth Strategy. It trades about 0.08 of its potential returns per unit of risk. Equity Growth Strategy is currently generating about 0.08 per unit of risk. If you would invest 25,277 in Microsoft on September 3, 2024 and sell it today you would earn a total of 17,069 from holding Microsoft or generate 67.53% 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. Equity Growth Strategy
Performance |
| Timeline |
| Microsoft |
| Equity Growth Strategy |
Microsoft and Equity Growth Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Equity Growth
The main advantage of trading using opposite Microsoft and Equity Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Equity Growth 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 Equity Growth will offset losses from the drop in Equity Growth's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Equity Growth vs. Legg Mason Partners | Equity Growth vs. Jpmorgan Emerging Markets | Equity Growth vs. Commodities Strategy Fund | Equity Growth vs. Arrow Managed Futures |
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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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