Correlation Between Microsoft and Telefnica
Can any of the company-specific risk be diversified away by investing in both Microsoft and Telefnica 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 Telefnica into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Telefnica SA, you can compare the effects of market volatilities on Microsoft and Telefnica 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 Telefnica. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Telefnica.
Diversification Opportunities for Microsoft and Telefnica
Significant diversification
The 3 months correlation between Microsoft and Telefnica is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Telefnica SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telefnica SA 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 Telefnica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telefnica SA has no effect on the direction of Microsoft i.e., Microsoft and Telefnica go up and down completely randomly.
Pair Corralation between Microsoft and Telefnica
Given the investment horizon of 90 days Microsoft is expected to generate 0.82 times more return on investment than Telefnica. However, Microsoft is 1.23 times less risky than Telefnica. It trades about -0.04 of its potential returns per unit of risk. Telefnica SA is currently generating about -0.09 per unit of risk. If you would invest 42,335 in Microsoft on November 4, 2024 and sell it today you would lose (829.00) from holding Microsoft or give up 1.96% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 90.91% |
| Values | Daily Returns |
Microsoft vs. Telefnica SA
Performance |
| Timeline |
| Microsoft |
| Telefnica SA |
Microsoft and Telefnica Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Telefnica
The main advantage of trading using opposite Microsoft and Telefnica positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Telefnica 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 Telefnica will offset losses from the drop in Telefnica's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Adobe Systems Incorporated | Microsoft vs. Crowdstrike Holdings |
| Telefnica vs. Melco Resorts Entertainment | Telefnica vs. KB Financial Group | Telefnica vs. Broadridge Financial Solutions, | Telefnica vs. Charter Communications |
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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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