Correlation Between Microsoft and Hilton Grand

Can any of the company-specific risk be diversified away by investing in both Microsoft and Hilton Grand 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 Hilton Grand into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Microsoft and Hilton Grand Vacations, you can compare the effects of market volatilities on Microsoft and Hilton Grand 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 Hilton Grand. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Hilton Grand.

Diversification Opportunities for Microsoft and Hilton Grand

0.09

Correlation Coefficient

Microsoft  Hilton Grand

Significant diversification

The 3 months correlation between Microsoft and Hilton is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Hilton Grand Vacations in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hilton Grand Vacations 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 Hilton Grand. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hilton Grand Vacations has no effect on the direction of Microsoft i.e., Microsoft and Hilton Grand go up and down completely randomly.

Pair Corralation between Microsoft and Hilton Grand

Given the investment horizon of 90 days Microsoft is expected to generate 3.11 times less return on investment than Hilton Grand. But when comparing it to its historical volatility, Microsoft is 1.72 times less risky than Hilton Grand. It trades about 0.05 of its potential returns per unit of risk. Hilton Grand Vacations is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  3,790  in Hilton Grand Vacations on September 2, 2024 and sell it today you would earn a total of  449.00  from holding Hilton Grand Vacations or generate 11.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Microsoft  vs.  Hilton Grand Vacations

Microsoft

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Hilton Grand Vacations

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hilton Grand Vacations are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady technical and fundamental indicators, Hilton Grand may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Microsoft and Hilton Grand

The main advantage of trading using opposite Microsoft and Hilton Grand positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Hilton Grand 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 Hilton Grand will offset losses from the drop in Hilton Grand's long position.

The idea behind Microsoft and Hilton Grand Vacations 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.

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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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.