Correlation Between Microsoft and Cboe Vest

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

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

Diversification Opportunities for Microsoft and Cboe Vest

-0.34

Correlation Coefficient

Microsoft  Cboe Vest

Very good diversification

The 3 months correlation between Microsoft and Cboe is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Cboe Vest Sp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cboe Vest Sp 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 Cboe Vest. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cboe Vest Sp has no effect on the direction of Microsoft i.e., Microsoft and Cboe Vest go up and down completely randomly.

Pair Corralation between Microsoft and Cboe Vest

Given the investment horizon of 90 days Microsoft is expected to generate 2.02 times more return on investment than Cboe Vest. However, Microsoft is 2.02 times more volatile than Cboe Vest Sp. It trades about 0.07 of its potential returns per unit of risk. Cboe Vest Sp is currently generating about -0.55 per unit of risk. If you would invest  42,346  in Microsoft on September 29, 2024 and sell it today you would earn a total of  707.00  from holding Microsoft or generate 1.67% return on investment over 90 days.

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

Microsoft  vs.  Cboe Vest Sp

Microsoft

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Microsoft has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Cboe Vest Sp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cboe Vest Sp has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Cboe Vest is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Microsoft and Cboe Vest

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

The idea behind Microsoft and Cboe Vest Sp 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.