Correlation Between Microsoft and Roku
Can any of the company-specific risk be diversified away by investing in both Microsoft and Roku 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 Roku into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Roku Inc, you can compare the effects of market volatilities on Microsoft and Roku 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 Roku. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Roku.
Diversification Opportunities for Microsoft and Roku
Very weak diversification
The 3 months correlation between Microsoft and Roku is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Roku Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Roku Inc 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 Roku. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Roku Inc has no effect on the direction of Microsoft i.e., Microsoft and Roku go up and down completely randomly.
Pair Corralation between Microsoft and Roku
Given the investment horizon of 90 days Microsoft is expected to generate 1.03 times less return on investment than Roku. But when comparing it to its historical volatility, Microsoft is 2.79 times less risky than Roku. It trades about 0.08 of its potential returns per unit of risk. Roku Inc is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 5,642 in Roku Inc on August 24, 2024 and sell it today you would earn a total of 1,227 from holding Roku Inc or generate 21.75% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Roku Inc
Performance |
| Timeline |
| Microsoft |
| Roku Inc |
Microsoft and Roku Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Roku
The main advantage of trading using opposite Microsoft and Roku positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Roku 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 Roku will offset losses from the drop in Roku's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Roku vs. Walt Disney | Roku vs. AMC Entertainment Holdings | Roku vs. Paramount Global Class | Roku vs. Warner Bros Discovery |
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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.
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