Correlation Between Microsoft and LPL Financial
Can any of the company-specific risk be diversified away by investing in both Microsoft and LPL 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 LPL Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and LPL Financial Holdings, you can compare the effects of market volatilities on Microsoft and LPL 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 LPL Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and LPL Financial.
Diversification Opportunities for Microsoft and LPL Financial
0.45 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Microsoft and LPL is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and LPL Financial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LPL 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 LPL Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LPL Financial Holdings has no effect on the direction of Microsoft i.e., Microsoft and LPL Financial go up and down completely randomly.
Pair Corralation between Microsoft and LPL Financial
Assuming the 90 days trading horizon Microsoft is expected to under-perform the LPL Financial. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.12 times less risky than LPL Financial. The stock trades about -0.07 of its potential returns per unit of risk. The LPL Financial Holdings is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest 11,245 in LPL Financial Holdings on October 29, 2024 and sell it today you would earn a total of 507.00 from holding LPL Financial Holdings or generate 4.51% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. LPL Financial Holdings
Performance |
| Timeline |
| Microsoft |
| LPL Financial Holdings |
Microsoft and LPL Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and LPL Financial
The main advantage of trading using opposite Microsoft and LPL Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, LPL 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 LPL Financial will offset losses from the drop in LPL Financial's long position.| Microsoft vs. Delta Air Lines | Microsoft vs. Ryanair Holdings plc | Microsoft vs. Marvell Technology | Microsoft vs. Align Technology |
| LPL Financial vs. Clover Health Investments, | LPL Financial vs. DXC Technology | LPL Financial vs. Patria Investments Limited | LPL Financial vs. Burlington Stores, |
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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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