Correlation Between Microsoft and BMO MSCI
Can any of the company-specific risk be diversified away by investing in both Microsoft and BMO MSCI 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 BMO MSCI into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and BMO MSCI EAFE, you can compare the effects of market volatilities on Microsoft and BMO MSCI 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 BMO MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and BMO MSCI.
Diversification Opportunities for Microsoft and BMO MSCI
Modest diversification
The 3 months correlation between Microsoft and BMO is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and BMO MSCI EAFE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO MSCI EAFE 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 BMO MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO MSCI EAFE has no effect on the direction of Microsoft i.e., Microsoft and BMO MSCI go up and down completely randomly.
Pair Corralation between Microsoft and BMO MSCI
Given the investment horizon of 90 days Microsoft is expected to generate 2.25 times more return on investment than BMO MSCI. However, Microsoft is 2.25 times more volatile than BMO MSCI EAFE. It trades about -0.02 of its potential returns per unit of risk. BMO MSCI EAFE is currently generating about -0.11 per unit of risk. If you would invest 42,944 in Microsoft on August 31, 2024 and sell it today you would lose (645.00) from holding Microsoft or give up 1.5% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 97.73% |
| Values | Daily Returns |
Microsoft vs. BMO MSCI EAFE
Performance |
| Timeline |
| Microsoft |
| BMO MSCI EAFE |
Microsoft and BMO MSCI Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and BMO MSCI
The main advantage of trading using opposite Microsoft and BMO MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, BMO MSCI 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 BMO MSCI will offset losses from the drop in BMO MSCI's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| BMO MSCI vs. Vanguard FTSE Emerging | BMO MSCI vs. Vanguard FTSE Developed | BMO MSCI vs. Vanguard Total Market | BMO MSCI vs. Vanguard Canadian Aggregate |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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