Correlation Between Microsoft and Sumitomo Corp
Can any of the company-specific risk be diversified away by investing in both Microsoft and Sumitomo Corp 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 Sumitomo Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Sumitomo Corp ADR, you can compare the effects of market volatilities on Microsoft and Sumitomo Corp 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 Sumitomo Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Sumitomo Corp.
Diversification Opportunities for Microsoft and Sumitomo Corp
-0.01 | Correlation Coefficient |
Good diversification
The 3 months correlation between Microsoft and Sumitomo is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Sumitomo Corp ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumitomo Corp ADR 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 Sumitomo Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sumitomo Corp ADR has no effect on the direction of Microsoft i.e., Microsoft and Sumitomo Corp go up and down completely randomly.
Pair Corralation between Microsoft and Sumitomo Corp
Given the investment horizon of 90 days Microsoft is expected to generate 0.86 times more return on investment than Sumitomo Corp. However, Microsoft is 1.16 times less risky than Sumitomo Corp. It trades about 0.19 of its potential returns per unit of risk. Sumitomo Corp ADR is currently generating about 0.04 per unit of risk. If you would invest 40,554 in Microsoft on September 1, 2024 and sell it today you would earn a total of 1,792 from holding Microsoft or generate 4.42% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Sumitomo Corp ADR
Performance |
| Timeline |
| Microsoft |
| Sumitomo Corp ADR |
Microsoft and Sumitomo Corp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Sumitomo Corp
The main advantage of trading using opposite Microsoft and Sumitomo Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Sumitomo Corp 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 Sumitomo Corp will offset losses from the drop in Sumitomo Corp's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Sumitomo Corp vs. Itochu Corp ADR | Sumitomo Corp vs. Mitsubishi Corp | Sumitomo Corp vs. ITOCHU | Sumitomo Corp vs. Marubeni Corp ADR |
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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.
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