Correlation Between Microsoft and SMA Solar
Can any of the company-specific risk be diversified away by investing in both Microsoft and SMA Solar 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 SMA Solar into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and SMA Solar Technology, you can compare the effects of market volatilities on Microsoft and SMA Solar 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 SMA Solar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and SMA Solar.
Diversification Opportunities for Microsoft and SMA Solar
Significant diversification
The 3 months correlation between Microsoft and SMA is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and SMA Solar Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SMA Solar Technology 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 SMA Solar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SMA Solar Technology has no effect on the direction of Microsoft i.e., Microsoft and SMA Solar go up and down completely randomly.
Pair Corralation between Microsoft and SMA Solar
Given the investment horizon of 90 days Microsoft is expected to generate 0.46 times more return on investment than SMA Solar. However, Microsoft is 2.17 times less risky than SMA Solar. It trades about -0.04 of its potential returns per unit of risk. SMA Solar Technology is currently generating about -0.3 per unit of risk. If you would invest 42,574 in Microsoft on August 27, 2024 and sell it today you would lose (695.00) from holding Microsoft or give up 1.63% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. SMA Solar Technology
Performance |
| Timeline |
| Microsoft |
| SMA Solar Technology |
Microsoft and SMA Solar Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and SMA Solar
The main advantage of trading using opposite Microsoft and SMA Solar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, SMA Solar 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 SMA Solar will offset losses from the drop in SMA Solar's long position.| Microsoft vs. GigaCloud Technology Class | Microsoft vs. Arqit Quantum | Microsoft vs. Cemtrex | Microsoft vs. Paysafe |
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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.
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