Correlation Between Microsoft and Wam Leaders
Can any of the company-specific risk be diversified away by investing in both Microsoft and Wam Leaders 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 Wam Leaders into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Wam Leaders, you can compare the effects of market volatilities on Microsoft and Wam Leaders 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 Wam Leaders. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Wam Leaders.
Diversification Opportunities for Microsoft and Wam Leaders
0.23 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Microsoft and Wam is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Wam Leaders in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wam Leaders 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 Wam Leaders. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wam Leaders has no effect on the direction of Microsoft i.e., Microsoft and Wam Leaders go up and down completely randomly.
Pair Corralation between Microsoft and Wam Leaders
Given the investment horizon of 90 days Microsoft is expected to generate 1.5 times more return on investment than Wam Leaders. However, Microsoft is 1.5 times more volatile than Wam Leaders. It trades about 0.1 of its potential returns per unit of risk. Wam Leaders is currently generating about -0.01 per unit of risk. If you would invest 22,130 in Microsoft on August 28, 2024 and sell it today you would earn a total of 19,749 from holding Microsoft or generate 89.24% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 99.37% |
| Values | Daily Returns |
Microsoft vs. Wam Leaders
Performance |
| Timeline |
| Microsoft |
| Wam Leaders |
Microsoft and Wam Leaders Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Wam Leaders
The main advantage of trading using opposite Microsoft and Wam Leaders positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Wam Leaders 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 Wam Leaders will offset losses from the drop in Wam Leaders' long position.| Microsoft vs. GigaCloud Technology Class | Microsoft vs. Arqit Quantum | Microsoft vs. Cemtrex | Microsoft vs. Paysafe |
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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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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