Correlation Between Microsoft and Value Line
Can any of the company-specific risk be diversified away by investing in both Microsoft and Value Line 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 Value Line into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Value Line Mid, you can compare the effects of market volatilities on Microsoft and Value Line 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 Value Line. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Value Line.
Diversification Opportunities for Microsoft and Value Line
0.46 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Microsoft and Value is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Value Line Mid in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Value Line Mid 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 Value Line. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Value Line Mid has no effect on the direction of Microsoft i.e., Microsoft and Value Line go up and down completely randomly.
Pair Corralation between Microsoft and Value Line
Given the investment horizon of 90 days Microsoft is expected to generate 1.52 times more return on investment than Value Line. However, Microsoft is 1.52 times more volatile than Value Line Mid. It trades about 0.08 of its potential returns per unit of risk. Value Line Mid is currently generating about 0.06 per unit of risk. If you would invest 24,616 in Microsoft on August 26, 2024 and sell it today you would earn a total of 17,084 from holding Microsoft or generate 69.4% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Value Line Mid
Performance |
| Timeline |
| Microsoft |
| Value Line Mid |
Microsoft and Value Line Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Value Line
The main advantage of trading using opposite Microsoft and Value Line positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Value Line 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 Value Line will offset losses from the drop in Value Line's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Value Line vs. Jhancock Short Duration | Value Line vs. Ultra Short Term Fixed | Value Line vs. Vanguard Institutional Short Term | Value Line vs. Calvert Short Duration |
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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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