Correlation Between Microsoft and BG Foods
Can any of the company-specific risk be diversified away by investing in both Microsoft and BG Foods 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 BG Foods into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and BG Foods, you can compare the effects of market volatilities on Microsoft and BG Foods 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 BG Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and BG Foods.
Diversification Opportunities for Microsoft and BG Foods
Modest diversification
The 3 months correlation between Microsoft and BGS is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and BG Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BG 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 BG Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BG Foods has no effect on the direction of Microsoft i.e., Microsoft and BG Foods go up and down completely randomly.
Pair Corralation between Microsoft and BG Foods
Given the investment horizon of 90 days Microsoft is expected to under-perform the BG Foods. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.1 times less risky than BG Foods. The stock trades about -0.13 of its potential returns per unit of risk. The BG Foods is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 1,098 in BG Foods on February 6, 2024 and sell it today you would earn a total of 18.00 from holding BG Foods or generate 1.64% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. BG Foods
Performance |
| Timeline |
| Microsoft |
| BG Foods |
Microsoft and BG Foods Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and BG Foods
The main advantage of trading using opposite Microsoft and BG Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, BG Foods 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 BG Foods will offset losses from the drop in BG Foods' long position.| Microsoft vs. Crowdstrike Holdings | Microsoft vs. Okta Inc | Microsoft vs. Cloudflare | Microsoft vs. MongoDB |
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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