Correlation Between Microsoft and Mid Cap
Can any of the company-specific risk be diversified away by investing in both Microsoft and Mid Cap 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 Mid Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Mid Cap Growth, you can compare the effects of market volatilities on Microsoft and Mid Cap 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 Mid Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Mid Cap.
Diversification Opportunities for Microsoft and Mid Cap
Average diversification
The 3 months correlation between Microsoft and Mid is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Mid Cap Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mid Cap Growth 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 Mid Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mid Cap Growth has no effect on the direction of Microsoft i.e., Microsoft and Mid Cap go up and down completely randomly.
Pair Corralation between Microsoft and Mid Cap
Given the investment horizon of 90 days Microsoft is expected to under-perform the Mid Cap. In addition to that, Microsoft is 1.31 times more volatile than Mid Cap Growth. It trades about -0.04 of its total potential returns per unit of risk. Mid Cap Growth is currently generating about 0.39 per unit of volatility. If you would invest 3,730 in Mid Cap Growth on August 28, 2024 and sell it today you would earn a total of 411.00 from holding Mid Cap Growth or generate 11.02% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Mid Cap Growth
Performance |
| Timeline |
| Microsoft |
| Mid Cap Growth |
Microsoft and Mid Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Mid Cap
The main advantage of trading using opposite Microsoft and Mid Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Mid Cap 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 Mid Cap will offset losses from the drop in Mid Cap's long position.| Microsoft vs. GigaCloud Technology Class | Microsoft vs. Arqit Quantum | Microsoft vs. Cemtrex | Microsoft vs. Paysafe |
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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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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