Correlation Between Microsoft and Mastercard Incorporated
Can any of the company-specific risk be diversified away by investing in both Microsoft and Mastercard Incorporated 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 Mastercard Incorporated into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Mastercard Incorporated, you can compare the effects of market volatilities on Microsoft and Mastercard Incorporated 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 Mastercard Incorporated. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Mastercard Incorporated.
Diversification Opportunities for Microsoft and Mastercard Incorporated
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Microsoft and Mastercard is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Mastercard Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mastercard Incorporated 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 Mastercard Incorporated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mastercard Incorporated has no effect on the direction of Microsoft i.e., Microsoft and Mastercard Incorporated go up and down completely randomly.
Pair Corralation between Microsoft and Mastercard Incorporated
Assuming the 90 days trading horizon Microsoft is expected to generate 1.24 times more return on investment than Mastercard Incorporated. However, Microsoft is 1.24 times more volatile than Mastercard Incorporated. It trades about 0.09 of its potential returns per unit of risk. Mastercard Incorporated is currently generating about 0.1 per unit of risk. If you would invest 39,433 in Microsoft on October 24, 2024 and sell it today you would earn a total of 2,912 from holding Microsoft or generate 7.38% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 100.0% |
Values | Daily Returns |
Microsoft vs. Mastercard Incorporated
Performance |
Timeline |
Microsoft |
Mastercard Incorporated |
Microsoft and Mastercard Incorporated Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Microsoft and Mastercard Incorporated
The main advantage of trading using opposite Microsoft and Mastercard Incorporated positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Mastercard Incorporated 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 Mastercard Incorporated will offset losses from the drop in Mastercard Incorporated's long position.Microsoft vs. United Rentals | Microsoft vs. INTERSHOP Communications Aktiengesellschaft | Microsoft vs. Rocket Internet SE | Microsoft vs. Air Lease |
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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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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