Correlation Between Microsoft and Summit Materials
Can any of the company-specific risk be diversified away by investing in both Microsoft and Summit Materials 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 Summit Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Summit Materials, you can compare the effects of market volatilities on Microsoft and Summit Materials 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 Summit Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Summit Materials.
Diversification Opportunities for Microsoft and Summit Materials
0.03 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Microsoft and Summit is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Summit Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Summit Materials 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 Summit Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Summit Materials has no effect on the direction of Microsoft i.e., Microsoft and Summit Materials go up and down completely randomly.
Pair Corralation between Microsoft and Summit Materials
Given the investment horizon of 90 days Microsoft is expected to under-perform the Summit Materials. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.37 times less risky than Summit Materials. The stock trades about -0.06 of its potential returns per unit of risk. The Summit Materials is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest 4,510 in Summit Materials on August 26, 2024 and sell it today you would earn a total of 656.00 from holding Summit Materials or generate 14.55% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Summit Materials
Performance |
| Timeline |
| Microsoft |
| Summit Materials |
Microsoft and Summit Materials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Summit Materials
The main advantage of trading using opposite Microsoft and Summit Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Summit Materials 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 Summit Materials will offset losses from the drop in Summit Materials' long position.| Microsoft vs. GigaCloud Technology Class | Microsoft vs. Arqit Quantum | Microsoft vs. Cemtrex | Microsoft vs. Rapid7 Inc |
| Summit Materials vs. Martin Marietta Materials | Summit Materials vs. Vulcan Materials | Summit Materials vs. United States Lime | Summit Materials vs. James Hardie Industries |
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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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