Correlation Between Microsoft and Advanced Micro
Can any of the company-specific risk be diversified away by investing in both Microsoft and Advanced Micro 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 Advanced Micro into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Advanced Micro Devices, you can compare the effects of market volatilities on Microsoft and Advanced Micro 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 Advanced Micro. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Advanced Micro.
Diversification Opportunities for Microsoft and Advanced Micro
0.34 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Microsoft and Advanced is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Advanced Micro Devices in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advanced Micro Devices 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 Advanced Micro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advanced Micro Devices has no effect on the direction of Microsoft i.e., Microsoft and Advanced Micro go up and down completely randomly.
Pair Corralation between Microsoft and Advanced Micro
Given the investment horizon of 90 days Microsoft is expected to generate 0.37 times more return on investment than Advanced Micro. However, Microsoft is 2.71 times less risky than Advanced Micro. It trades about -0.03 of its potential returns per unit of risk. Advanced Micro Devices is currently generating about -0.31 per unit of risk. If you would invest 41,732 in Microsoft on January 17, 2024 and sell it today you would lose (274.00) from holding Microsoft or give up 0.66% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Advanced Micro Devices
Performance |
| Timeline |
| Microsoft |
| Advanced Micro Devices |
Microsoft and Advanced Micro Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Advanced Micro
The main advantage of trading using opposite Microsoft and Advanced Micro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Advanced Micro 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 Advanced Micro will offset losses from the drop in Advanced Micro's long position.| Microsoft vs. Cloudflare | Microsoft vs. Okta Inc | Microsoft vs. Adobe Systems Incorporated | Microsoft vs. Nutanix |
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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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