Correlation Between Microsoft and SGS SA
Can any of the company-specific risk be diversified away by investing in both Microsoft and SGS SA 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 SGS SA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and SGS SA, you can compare the effects of market volatilities on Microsoft and SGS SA 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 SGS SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and SGS SA.
Diversification Opportunities for Microsoft and SGS SA
Average diversification
The 3 months correlation between Microsoft and SGS is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and SGS SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SGS SA 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 SGS SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SGS SA has no effect on the direction of Microsoft i.e., Microsoft and SGS SA go up and down completely randomly.
Pair Corralation between Microsoft and SGS SA
Given the investment horizon of 90 days Microsoft is expected to generate 3.15 times less return on investment than SGS SA. But when comparing it to its historical volatility, Microsoft is 1.96 times less risky than SGS SA. It trades about 0.03 of its potential returns per unit of risk. SGS SA is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 8,044 in SGS SA on August 24, 2024 and sell it today you would earn a total of 1,679 from holding SGS SA or generate 20.87% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 76.8% |
| Values | Daily Returns |
Microsoft vs. SGS SA
Performance |
| Timeline |
| Microsoft |
| SGS SA |
Microsoft and SGS SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and SGS SA
The main advantage of trading using opposite Microsoft and SGS SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, SGS SA 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 SGS SA will offset losses from the drop in SGS SA's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| SGS SA vs. Sack Lunch Productions | SGS SA vs. Potash America | SGS SA vs. Blue Diamond Ventures | SGS SA vs. Daniels Corporate Advisory |
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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.
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