Correlation Between Microsoft and Bread Financial
Can any of the company-specific risk be diversified away by investing in both Microsoft and Bread Financial 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 Bread Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Bread Financial Holdings, you can compare the effects of market volatilities on Microsoft and Bread Financial 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 Bread Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Bread Financial.
Diversification Opportunities for Microsoft and Bread Financial
0.39 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Microsoft and Bread is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Bread Financial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bread Financial Holdings 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 Bread Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bread Financial Holdings has no effect on the direction of Microsoft i.e., Microsoft and Bread Financial go up and down completely randomly.
Pair Corralation between Microsoft and Bread Financial
Assuming the 90 days trading horizon Microsoft is expected to generate 0.41 times more return on investment than Bread Financial. However, Microsoft is 2.43 times less risky than Bread Financial. It trades about 0.08 of its potential returns per unit of risk. Bread Financial Holdings is currently generating about 0.03 per unit of risk. If you would invest 9,757 in Microsoft on August 31, 2024 and sell it today you would earn a total of 713.00 from holding Microsoft or generate 7.31% 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. Bread Financial Holdings
Performance |
| Timeline |
| Microsoft |
| Bread Financial Holdings |
Microsoft and Bread Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Bread Financial
The main advantage of trading using opposite Microsoft and Bread Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Bread Financial 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 Bread Financial will offset losses from the drop in Bread Financial's long position.| Microsoft vs. Capital One Financial | Microsoft vs. Charter Communications | Microsoft vs. METISA Metalrgica Timboense | Microsoft vs. G2D Investments |
| Bread Financial vs. Visa Inc | Bread Financial vs. Capital One Financial | Bread Financial vs. Credit Acceptance |
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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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