Correlation Between Microsoft and Smallcap Fund
Can any of the company-specific risk be diversified away by investing in both Microsoft and Smallcap Fund 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 Smallcap Fund into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Smallcap Fund Fka, you can compare the effects of market volatilities on Microsoft and Smallcap Fund 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 Smallcap Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Smallcap Fund.
Diversification Opportunities for Microsoft and Smallcap Fund
0.48 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Microsoft and Smallcap is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Smallcap Fund Fka in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smallcap Fund Fka 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 Smallcap Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smallcap Fund Fka has no effect on the direction of Microsoft i.e., Microsoft and Smallcap Fund go up and down completely randomly.
Pair Corralation between Microsoft and Smallcap Fund
Given the investment horizon of 90 days Microsoft is expected to generate 1.29 times more return on investment than Smallcap Fund. However, Microsoft is 1.29 times more volatile than Smallcap Fund Fka. It trades about -0.12 of its potential returns per unit of risk. Smallcap Fund Fka is currently generating about -0.19 per unit of risk. If you would invest 43,654 in Microsoft on December 4, 2024 and sell it today you would lose (4,805) from holding Microsoft or give up 11.01% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 98.33% |
Values | Daily Returns |
Microsoft vs. Smallcap Fund Fka
Performance |
Timeline |
Microsoft |
Smallcap Fund Fka |
Microsoft and Smallcap Fund Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Microsoft and Smallcap Fund
The main advantage of trading using opposite Microsoft and Smallcap Fund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Smallcap Fund 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 Smallcap Fund will offset losses from the drop in Smallcap Fund'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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
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