Correlation Between Microsoft and Vertex Pharmaceuticals
Can any of the company-specific risk be diversified away by investing in both Microsoft and Vertex Pharmaceuticals 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 Vertex Pharmaceuticals into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Vertex Pharmaceuticals, you can compare the effects of market volatilities on Microsoft and Vertex Pharmaceuticals 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 Vertex Pharmaceuticals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Vertex Pharmaceuticals.
Diversification Opportunities for Microsoft and Vertex Pharmaceuticals
0.05 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Microsoft and Vertex is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Vertex Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vertex Pharmaceuticals 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 Vertex Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vertex Pharmaceuticals has no effect on the direction of Microsoft i.e., Microsoft and Vertex Pharmaceuticals go up and down completely randomly.
Pair Corralation between Microsoft and Vertex Pharmaceuticals
Given the investment horizon of 90 days Microsoft is expected to generate 0.7 times more return on investment than Vertex Pharmaceuticals. However, Microsoft is 1.43 times less risky than Vertex Pharmaceuticals. It trades about 0.51 of its potential returns per unit of risk. Vertex Pharmaceuticals is currently generating about 0.17 per unit of risk. If you would invest 41,493 in Microsoft on September 19, 2024 and sell it today you would earn a total of 3,953 from holding Microsoft or generate 9.53% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 95.24% |
| Values | Daily Returns |
Microsoft vs. Vertex Pharmaceuticals
Performance |
| Timeline |
| Microsoft |
| Vertex Pharmaceuticals |
Microsoft and Vertex Pharmaceuticals Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Vertex Pharmaceuticals
The main advantage of trading using opposite Microsoft and Vertex Pharmaceuticals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Vertex Pharmaceuticals 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 Vertex Pharmaceuticals will offset losses from the drop in Vertex Pharmaceuticals' long position.| Microsoft vs. Global Blue Group | Microsoft vs. Aurora Mobile | Microsoft vs. Marqeta | Microsoft vs. Nextnav Acquisition Corp |
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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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