Correlation Between American International and Microsoft
Can any of the company-specific risk be diversified away by investing in both American International 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 American International and Microsoft into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American International Group and Microsoft, you can compare the effects of market volatilities on American International 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 American International with a short position of Microsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of American International and Microsoft.
Diversification Opportunities for American International and Microsoft
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between American and Microsoft is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding American International Group and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and American International 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 American International Group 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 American International i.e., American International and Microsoft go up and down completely randomly.
Pair Corralation between American International and Microsoft
Assuming the 90 days trading horizon American International is expected to generate 1.09 times less return on investment than Microsoft. But when comparing it to its historical volatility, American International Group is 1.57 times less risky than Microsoft. It trades about 0.14 of its potential returns per unit of risk. Microsoft is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 634,280 in Microsoft on September 24, 2024 and sell it today you would earn a total of 240,773 from holding Microsoft or generate 37.96% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 99.6% |
Values | Daily Returns |
American International Group vs. Microsoft
Performance |
Timeline |
American International |
Microsoft |
American International and Microsoft Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with American International and Microsoft
The main advantage of trading using opposite American International and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American International 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.American International vs. Delta Air Lines | American International vs. Monster Beverage Corp | American International vs. McEwen Mining | American International vs. Taiwan Semiconductor Manufacturing |
Microsoft vs. CrowdStrike Holdings, | Microsoft vs. F5 Networks | Microsoft vs. Grupo Profuturo SAB | Microsoft vs. American International Group |
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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.
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