Correlation Between Microsoft and Xtrackers
Can any of the company-specific risk be diversified away by investing in both Microsoft and Xtrackers 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 Xtrackers into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Xtrackers SP 500, you can compare the effects of market volatilities on Microsoft and Xtrackers 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 Xtrackers. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Xtrackers.
Diversification Opportunities for Microsoft and Xtrackers
Average diversification
The 3 months correlation between Microsoft and Xtrackers is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Xtrackers SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers SP 500 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 Xtrackers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers SP 500 has no effect on the direction of Microsoft i.e., Microsoft and Xtrackers go up and down completely randomly.
Pair Corralation between Microsoft and Xtrackers
Given the investment horizon of 90 days Microsoft is expected to generate 2.97 times less return on investment than Xtrackers. But when comparing it to its historical volatility, Microsoft is 1.17 times less risky than Xtrackers. It trades about 0.05 of its potential returns per unit of risk. Xtrackers SP 500 is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 21,843 in Xtrackers SP 500 on August 31, 2024 and sell it today you would earn a total of 2,618 from holding Xtrackers SP 500 or generate 11.99% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 98.44% |
| Values | Daily Returns |
Microsoft vs. Xtrackers SP 500
Performance |
| Timeline |
| Microsoft |
| Xtrackers SP 500 |
Microsoft and Xtrackers Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Xtrackers
The main advantage of trading using opposite Microsoft and Xtrackers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Xtrackers 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 Xtrackers will offset losses from the drop in Xtrackers' long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Xtrackers vs. Xtrackers MSCI | Xtrackers vs. Xtrackers FTSE 250 | Xtrackers vs. Xtrackers Ie Plc | Xtrackers vs. Xtrackers Russell 2000 |
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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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