Correlation Between Microsoft and Rio Tinto
Can any of the company-specific risk be diversified away by investing in both Microsoft and Rio Tinto 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 Rio Tinto into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Rio Tinto Group, you can compare the effects of market volatilities on Microsoft and Rio Tinto 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 Rio Tinto. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Rio Tinto.
Diversification Opportunities for Microsoft and Rio Tinto
Good diversification
The 3 months correlation between Microsoft and Rio is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Rio Tinto Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio Tinto Group 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 Rio Tinto. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rio Tinto Group has no effect on the direction of Microsoft i.e., Microsoft and Rio Tinto go up and down completely randomly.
Pair Corralation between Microsoft and Rio Tinto
Given the investment horizon of 90 days Microsoft is expected to generate 0.92 times more return on investment than Rio Tinto. However, Microsoft is 1.09 times less risky than Rio Tinto. It trades about -0.01 of its potential returns per unit of risk. Rio Tinto Group is currently generating about -0.04 per unit of risk. If you would invest 42,574 in Microsoft on August 29, 2024 and sell it today you would lose (275.00) from holding Microsoft or give up 0.65% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 95.65% |
| Values | Daily Returns |
Microsoft vs. Rio Tinto Group
Performance |
| Timeline |
| Microsoft |
| Rio Tinto Group |
Microsoft and Rio Tinto Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Rio Tinto
The main advantage of trading using opposite Microsoft and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Rio Tinto 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 Rio Tinto will offset losses from the drop in Rio Tinto's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Rio Tinto vs. McEwen Mining | Rio Tinto vs. The Select Sector | Rio Tinto vs. SPDR Series Trust | Rio Tinto vs. FibroGen |
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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.
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