Correlation Between Block and Microsoft
Can any of the company-specific risk be diversified away by investing in both Block 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 Block and Microsoft into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Block Inc and Microsoft, you can compare the effects of market volatilities on Block 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 Block with a short position of Microsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of Block and Microsoft.
Diversification Opportunities for Block and Microsoft
Significant diversification
The 3 months correlation between Block and Microsoft is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Block Inc and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and Block 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 Block Inc 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 Block i.e., Block and Microsoft go up and down completely randomly.
Pair Corralation between Block and Microsoft
Allowing for the 90-day total investment horizon Block Inc is expected to generate 2.26 times more return on investment than Microsoft. However, Block is 2.26 times more volatile than Microsoft. It trades about 0.31 of its potential returns per unit of risk. Microsoft is currently generating about -0.06 per unit of risk. If you would invest 7,261 in Block Inc on August 26, 2024 and sell it today you would earn a total of 1,965 from holding Block Inc or generate 27.06% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Block Inc vs. Microsoft
Performance |
| Timeline |
| Block Inc |
| Microsoft |
Block and Microsoft Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Block and Microsoft
The main advantage of trading using opposite Block and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Block 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.| Block vs. Oneconnect Financial Technology | Block vs. Global Business Travel | Block vs. Alight Inc | Block vs. CS Disco LLC |
| Microsoft vs. GigaCloud Technology Class | Microsoft vs. Arqit Quantum | Microsoft vs. Cemtrex | Microsoft vs. Rapid7 Inc |
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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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