Correlation Between Microsoft and Associated British
Can any of the company-specific risk be diversified away by investing in both Microsoft and Associated British 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 Associated British into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Associated British Foods, you can compare the effects of market volatilities on Microsoft and Associated British 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 Associated British. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Associated British.
Diversification Opportunities for Microsoft and Associated British
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Microsoft and Associated is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Associated British Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Associated British Foods 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 Associated British. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Associated British Foods has no effect on the direction of Microsoft i.e., Microsoft and Associated British go up and down completely randomly.
Pair Corralation between Microsoft and Associated British
Given the investment horizon of 90 days Microsoft is expected to under-perform the Associated British. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.53 times less risky than Associated British. The stock trades about -0.24 of its potential returns per unit of risk. The Associated British Foods is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 2,987 in Associated British Foods on January 20, 2024 and sell it today you would earn a total of 79.00 from holding Associated British Foods or generate 2.64% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Microsoft vs. Associated British Foods
Performance |
| Timeline |
| Microsoft |
| Associated British Foods |
Microsoft and Associated British Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Associated British
The main advantage of trading using opposite Microsoft and Associated British positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Associated British 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 Associated British will offset losses from the drop in Associated British's long position.| Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated | Microsoft vs. Crowdstrike Holdings | Microsoft vs. Cloudflare |
| Associated British vs. Kellanova | Associated British vs. Lancaster Colony | Associated British vs. The A2 Milk | Associated British vs. Artisan Consumer Goods |
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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