Correlation Between Microsoft and Basic Materials
Can any of the company-specific risk be diversified away by investing in both Microsoft and Basic Materials 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 Basic Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Basic Materials Fund, you can compare the effects of market volatilities on Microsoft and Basic Materials 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 Basic Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Basic Materials.
Diversification Opportunities for Microsoft and Basic Materials
0.34 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Microsoft and Basic is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Basic Materials Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Basic Materials 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 Basic Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Basic Materials has no effect on the direction of Microsoft i.e., Microsoft and Basic Materials go up and down completely randomly.
Pair Corralation between Microsoft and Basic Materials
Given the investment horizon of 90 days Microsoft is expected to under-perform the Basic Materials. In addition to that, Microsoft is 1.87 times more volatile than Basic Materials Fund. It trades about -0.06 of its total potential returns per unit of risk. Basic Materials Fund is currently generating about -0.06 per unit of volatility. If you would invest 6,845 in Basic Materials Fund on August 24, 2024 and sell it today you would lose (93.00) from holding Basic Materials Fund or give up 1.36% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Basic Materials Fund
Performance |
| Timeline |
| Microsoft |
| Basic Materials |
Microsoft and Basic Materials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Basic Materials
The main advantage of trading using opposite Microsoft and Basic Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Basic Materials 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 Basic Materials will offset losses from the drop in Basic Materials' long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Basic Materials vs. Basic Materials Fund | Basic Materials vs. Energy Services Fund | Basic Materials vs. Energy Fund Class | Basic Materials vs. Basic Materials 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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