Correlation Between Microsoft and Wayfair
Can any of the company-specific risk be diversified away by investing in both Microsoft and Wayfair 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 Wayfair into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Wayfair, you can compare the effects of market volatilities on Microsoft and Wayfair 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 Wayfair. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Wayfair.
Diversification Opportunities for Microsoft and Wayfair
Modest diversification
The 3 months correlation between Microsoft and Wayfair is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Wayfair in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wayfair 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 Wayfair. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wayfair has no effect on the direction of Microsoft i.e., Microsoft and Wayfair go up and down completely randomly.
Pair Corralation between Microsoft and Wayfair
Given the investment horizon of 90 days Microsoft is expected to generate 0.37 times more return on investment than Wayfair. However, Microsoft is 2.67 times less risky than Wayfair. It trades about 0.0 of its potential returns per unit of risk. Wayfair is currently generating about -0.01 per unit of risk. If you would invest 41,596 in Microsoft on August 23, 2024 and sell it today you would lose (309.00) from holding Microsoft or give up 0.74% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Wayfair
Performance |
| Timeline |
| Microsoft |
| Wayfair |
Microsoft and Wayfair Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Wayfair
The main advantage of trading using opposite Microsoft and Wayfair positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Wayfair 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 Wayfair will offset losses from the drop in Wayfair'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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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