Correlation Between Toast and Microsoft
Can any of the company-specific risk be diversified away by investing in both Toast 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 Toast and Microsoft into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Toast Inc and Microsoft, you can compare the effects of market volatilities on Toast 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 Toast with a short position of Microsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of Toast and Microsoft.
Diversification Opportunities for Toast and Microsoft
Significant diversification
The 3 months correlation between Toast and Microsoft is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Toast Inc and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and Toast 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 Toast 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 Toast i.e., Toast and Microsoft go up and down completely randomly.
Pair Corralation between Toast and Microsoft
Given the investment horizon of 90 days Toast Inc is expected to generate 2.17 times more return on investment than Microsoft. However, Toast is 2.17 times more volatile than Microsoft. It trades about 0.48 of its potential returns per unit of risk. Microsoft is currently generating about -0.06 per unit of risk. If you would invest 2,925 in Toast Inc on August 24, 2024 and sell it today you would earn a total of 1,311 from holding Toast Inc or generate 44.82% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Toast Inc vs. Microsoft
Performance |
| Timeline |
| Toast Inc |
| Microsoft |
Toast and Microsoft Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Toast and Microsoft
The main advantage of trading using opposite Toast and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Toast 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.The idea behind Toast Inc and Microsoft pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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