Correlation Between Microsoft and Santos
Can any of the company-specific risk be diversified away by investing in both Microsoft and Santos 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 Santos into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Santos, you can compare the effects of market volatilities on Microsoft and Santos 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 Santos. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Santos.
Diversification Opportunities for Microsoft and Santos
Very good diversification
The 3 months correlation between Microsoft and Santos is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Santos in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Santos 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 Santos. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Santos has no effect on the direction of Microsoft i.e., Microsoft and Santos go up and down completely randomly.
Pair Corralation between Microsoft and Santos
Given the investment horizon of 90 days Microsoft is expected to generate 11.07 times less return on investment than Santos. But when comparing it to its historical volatility, Microsoft is 3.32 times less risky than Santos. It trades about 0.01 of its potential returns per unit of risk. Santos is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 428.00 in Santos on November 3, 2024 and sell it today you would earn a total of 47.00 from holding Santos or generate 10.98% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 97.58% |
| Values | Daily Returns |
Microsoft vs. Santos
Performance |
| Timeline |
| Microsoft |
| Santos |
Microsoft and Santos Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Santos
The main advantage of trading using opposite Microsoft and Santos positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Santos 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 Santos will offset losses from the drop in Santos' long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Adobe Systems Incorporated | Microsoft vs. Crowdstrike Holdings |
| Santos vs. PetroShale | Santos vs. Inpex Corp ADR | Santos vs. Canacol Energy | Santos vs. Battalion Oil Corp |
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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