Correlation Between Microsoft and Stralem Equity
Can any of the company-specific risk be diversified away by investing in both Microsoft and Stralem Equity 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 Stralem Equity into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Stralem Equity Fund, you can compare the effects of market volatilities on Microsoft and Stralem Equity 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 Stralem Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Stralem Equity.
Diversification Opportunities for Microsoft and Stralem Equity
0.09 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Microsoft and Stralem is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Stralem Equity Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stralem Equity 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 Stralem Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stralem Equity has no effect on the direction of Microsoft i.e., Microsoft and Stralem Equity go up and down completely randomly.
Pair Corralation between Microsoft and Stralem Equity
Given the investment horizon of 90 days Microsoft is expected to generate 1.11 times less return on investment than Stralem Equity. In addition to that, Microsoft is 1.74 times more volatile than Stralem Equity Fund. It trades about 0.07 of its total potential returns per unit of risk. Stralem Equity Fund is currently generating about 0.14 per unit of volatility. If you would invest 2,182 in Stralem Equity Fund on August 30, 2024 and sell it today you would earn a total of 1,048 from holding Stralem Equity Fund or generate 48.03% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Stralem Equity Fund
Performance |
| Timeline |
| Microsoft |
| Stralem Equity |
Microsoft and Stralem Equity Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Stralem Equity
The main advantage of trading using opposite Microsoft and Stralem Equity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Stralem Equity 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 Stralem Equity will offset losses from the drop in Stralem Equity's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
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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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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