Correlation Between Microsoft and Searchlight Resources
Can any of the company-specific risk be diversified away by investing in both Microsoft and Searchlight Resources 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 Searchlight Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Searchlight Resources, you can compare the effects of market volatilities on Microsoft and Searchlight Resources 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 Searchlight Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Searchlight Resources.
Diversification Opportunities for Microsoft and Searchlight Resources
-0.02 | Correlation Coefficient |
Good diversification
The 3 months correlation between Microsoft and Searchlight is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Searchlight Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Searchlight Resources 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 Searchlight Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Searchlight Resources has no effect on the direction of Microsoft i.e., Microsoft and Searchlight Resources go up and down completely randomly.
Pair Corralation between Microsoft and Searchlight Resources
Given the investment horizon of 90 days Microsoft is expected to under-perform the Searchlight Resources. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 13.75 times less risky than Searchlight Resources. The stock trades about -0.04 of its potential returns per unit of risk. The Searchlight Resources is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 0.59 in Searchlight Resources on August 25, 2024 and sell it today you would lose (0.14) from holding Searchlight Resources or give up 23.73% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Searchlight Resources
Performance |
| Timeline |
| Microsoft |
| Searchlight Resources |
Microsoft and Searchlight Resources Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Searchlight Resources
The main advantage of trading using opposite Microsoft and Searchlight Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Searchlight Resources 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 Searchlight Resources will offset losses from the drop in Searchlight Resources' long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Searchlight Resources vs. Norra Metals Corp | Searchlight Resources vs. ZincX Resources Corp | Searchlight Resources vs. Nuinsco Resources Limited | Searchlight Resources vs. South Star Battery |
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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