Correlation Between Microsoft and Sony
Can any of the company-specific risk be diversified away by investing in both Microsoft and Sony 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 Sony into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Sony Group, you can compare the effects of market volatilities on Microsoft and Sony 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 Sony. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Sony.
Diversification Opportunities for Microsoft and Sony
Very good diversification
The 3 months correlation between Microsoft and Sony is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Sony Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sony Group 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 Sony. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sony Group has no effect on the direction of Microsoft i.e., Microsoft and Sony go up and down completely randomly.
Pair Corralation between Microsoft and Sony
Given the investment horizon of 90 days Microsoft is expected to under-perform the Sony. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.27 times less risky than Sony. The stock trades about -0.04 of its potential returns per unit of risk. The Sony Group is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest 36,489 in Sony Group on August 31, 2024 and sell it today you would earn a total of 4,311 from holding Sony Group or generate 11.81% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Microsoft vs. Sony Group
Performance |
| Timeline |
| Microsoft |
| Sony Group |
Microsoft and Sony Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Sony
The main advantage of trading using opposite Microsoft and Sony positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Sony 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 Sony will offset losses from the drop in Sony's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
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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