Correlation Between Microsoft and View
Can any of the company-specific risk be diversified away by investing in both Microsoft and View 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 View into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and View Inc, you can compare the effects of market volatilities on Microsoft and View 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 View. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and View.
Diversification Opportunities for Microsoft and View
Significant diversification
The 3 months correlation between Microsoft and View is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and View Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on View Inc 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 View. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of View Inc has no effect on the direction of Microsoft i.e., Microsoft and View go up and down completely randomly.
Pair Corralation between Microsoft and View
Given the investment horizon of 90 days Microsoft is expected to generate 6.62 times less return on investment than View. But when comparing it to its historical volatility, Microsoft is 10.25 times less risky than View. It trades about 0.06 of its potential returns per unit of risk. View Inc is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 1.20 in View Inc on August 31, 2024 and sell it today you would lose (0.10) from holding View Inc or give up 8.33% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 8.56% |
| Values | Daily Returns |
Microsoft vs. View Inc
Performance |
| Timeline |
| Microsoft |
| View Inc |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Microsoft and View Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and View
The main advantage of trading using opposite Microsoft and View positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, View 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 View will offset losses from the drop in View's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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