Correlation Between Microsoft and Chow Steel
Can any of the company-specific risk be diversified away by investing in both Microsoft and Chow Steel 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 Chow Steel into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Chow Steel Industries, you can compare the effects of market volatilities on Microsoft and Chow Steel 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 Chow Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Chow Steel.
Diversification Opportunities for Microsoft and Chow Steel
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Microsoft and Chow is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Chow Steel Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chow Steel Industries 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 Chow Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chow Steel Industries has no effect on the direction of Microsoft i.e., Microsoft and Chow Steel go up and down completely randomly.
Pair Corralation between Microsoft and Chow Steel
Given the investment horizon of 90 days Microsoft is expected to generate 0.26 times more return on investment than Chow Steel. However, Microsoft is 3.91 times less risky than Chow Steel. It trades about -0.25 of its potential returns per unit of risk. Chow Steel Industries is currently generating about -0.07 per unit of risk. If you would invest 41,010 in Microsoft on December 4, 2024 and sell it today you would lose (2,161) from holding Microsoft or give up 5.27% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Microsoft vs. Chow Steel Industries
Performance |
Timeline |
Microsoft |
Chow Steel Industries |
Microsoft and Chow Steel Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Microsoft and Chow Steel
The main advantage of trading using opposite Microsoft and Chow Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Chow Steel 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 Chow Steel will offset losses from the drop in Chow Steel's long position.Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Adobe Systems Incorporated | Microsoft vs. Crowdstrike Holdings |
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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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
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