Correlation Between Palantir Technologies and Microsoft
Can any of the company-specific risk be diversified away by investing in both Palantir Technologies and Microsoft 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 Palantir Technologies and Microsoft into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Palantir Technologies and Microsoft, you can compare the effects of market volatilities on Palantir Technologies and Microsoft 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 Palantir Technologies with a short position of Microsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of Palantir Technologies and Microsoft.
Diversification Opportunities for Palantir Technologies and Microsoft
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Palantir and Microsoft is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Palantir Technologies and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and Palantir Technologies 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 Palantir Technologies are associated (or correlated) with Microsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft has no effect on the direction of Palantir Technologies i.e., Palantir Technologies and Microsoft go up and down completely randomly.
Pair Corralation between Palantir Technologies and Microsoft
Assuming the 90 days horizon Palantir Technologies is expected to generate 2.33 times more return on investment than Microsoft. However, Palantir Technologies is 2.33 times more volatile than Microsoft. It trades about 0.23 of its potential returns per unit of risk. Microsoft is currently generating about 0.04 per unit of risk. If you would invest 5,170 in Palantir Technologies on November 6, 2024 and sell it today you would earn a total of 2,933 from holding Palantir Technologies or generate 56.73% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Palantir Technologies vs. Microsoft
Performance |
| Timeline |
| Palantir Technologies |
| Microsoft |
Palantir Technologies and Microsoft Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Palantir Technologies and Microsoft
The main advantage of trading using opposite Palantir Technologies and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Palantir Technologies position performs unexpectedly, Microsoft 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 Microsoft will offset losses from the drop in Microsoft's long position.| Palantir Technologies vs. MAGNUM MINING EXP | Palantir Technologies vs. BANKINTER ADR 2007 | Palantir Technologies vs. Direct Line Insurance | Palantir Technologies vs. Chiba Bank |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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