Correlation Between Microsoft and SP Funds
Can any of the company-specific risk be diversified away by investing in both Microsoft and SP Funds 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 SP Funds into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and SP Funds Dow, you can compare the effects of market volatilities on Microsoft and SP Funds 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 SP Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and SP Funds.
Diversification Opportunities for Microsoft and SP Funds
Weak diversification
The 3 months correlation between Microsoft and SPSK is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and SP Funds Dow in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SP Funds Dow 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 SP Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SP Funds Dow has no effect on the direction of Microsoft i.e., Microsoft and SP Funds go up and down completely randomly.
Pair Corralation between Microsoft and SP Funds
Given the investment horizon of 90 days Microsoft is expected to under-perform the SP Funds. In addition to that, Microsoft is 4.7 times more volatile than SP Funds Dow. It trades about -0.04 of its total potential returns per unit of risk. SP Funds Dow is currently generating about 0.05 per unit of volatility. If you would invest 1,809 in SP Funds Dow on August 31, 2024 and sell it today you would earn a total of 7.00 from holding SP Funds Dow or generate 0.39% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. SP Funds Dow
Performance |
| Timeline |
| Microsoft |
| SP Funds Dow |
Microsoft and SP Funds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and SP Funds
The main advantage of trading using opposite Microsoft and SP Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, SP Funds 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 SP Funds will offset losses from the drop in SP Funds' long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| SP Funds vs. SPDR Bloomberg Short | SP Funds vs. Invesco International Corporate | SP Funds vs. SPDR Bloomberg Emerging | SP Funds vs. SPDR Nuveen Bloomberg |
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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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