Correlation Between Microsoft and White Mountains
Can any of the company-specific risk be diversified away by investing in both Microsoft and White Mountains 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 White Mountains into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and White Mountains Insurance, you can compare the effects of market volatilities on Microsoft and White Mountains 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 White Mountains. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and White Mountains.
Diversification Opportunities for Microsoft and White Mountains
0.33 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Microsoft and White is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and White Mountains Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on White Mountains Insurance 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 White Mountains. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of White Mountains Insurance has no effect on the direction of Microsoft i.e., Microsoft and White Mountains go up and down completely randomly.
Pair Corralation between Microsoft and White Mountains
Given the investment horizon of 90 days Microsoft is expected to generate 2.74 times less return on investment than White Mountains. But when comparing it to its historical volatility, Microsoft is 1.08 times less risky than White Mountains. It trades about 0.03 of its potential returns per unit of risk. White Mountains Insurance is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 156,711 in White Mountains Insurance on November 9, 2024 and sell it today you would earn a total of 40,911 from holding White Mountains Insurance or generate 26.11% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. White Mountains Insurance
Performance |
| Timeline |
| Microsoft |
| White Mountains Insurance |
Microsoft and White Mountains Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and White Mountains
The main advantage of trading using opposite Microsoft and White Mountains positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, White Mountains 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 White Mountains will offset losses from the drop in White Mountains' long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Adobe Systems Incorporated | Microsoft vs. Crowdstrike Holdings |
| White Mountains vs. NI Holdings | White Mountains vs. Donegal Group A | White Mountains vs. Donegal Group B | White Mountains vs. The Hanover Insurance |
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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.
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