Correlation Between Microsoft and Cathay Koreataiwan
Can any of the company-specific risk be diversified away by investing in both Microsoft and Cathay Koreataiwan 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 Cathay Koreataiwan into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Cathay Koreataiwan IT, you can compare the effects of market volatilities on Microsoft and Cathay Koreataiwan 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 Cathay Koreataiwan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Cathay Koreataiwan.
Diversification Opportunities for Microsoft and Cathay Koreataiwan
-0.36 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Microsoft and Cathay is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Cathay Koreataiwan IT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathay Koreataiwan 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 Cathay Koreataiwan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathay Koreataiwan has no effect on the direction of Microsoft i.e., Microsoft and Cathay Koreataiwan go up and down completely randomly.
Pair Corralation between Microsoft and Cathay Koreataiwan
Given the investment horizon of 90 days Microsoft is expected to generate 1.62 times more return on investment than Cathay Koreataiwan. However, Microsoft is 1.62 times more volatile than Cathay Koreataiwan IT. It trades about 0.0 of its potential returns per unit of risk. Cathay Koreataiwan IT is currently generating about -0.02 per unit of risk. If you would invest 41,790 in Microsoft on October 15, 2024 and sell it today you would lose (71.00) from holding Microsoft or give up 0.17% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Insignificant |
Accuracy | 95.31% |
Values | Daily Returns |
Microsoft vs. Cathay Koreataiwan IT
Performance |
Timeline |
Microsoft |
Cathay Koreataiwan |
Microsoft and Cathay Koreataiwan Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Microsoft and Cathay Koreataiwan
The main advantage of trading using opposite Microsoft and Cathay Koreataiwan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Cathay Koreataiwan 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 Cathay Koreataiwan will offset losses from the drop in Cathay Koreataiwan's long position.Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
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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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.
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