Correlation Between Microsoft and Ford
Can any of the company-specific risk be diversified away by investing in both Microsoft and Ford 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 Ford into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Ford Motor, you can compare the effects of market volatilities on Microsoft and Ford 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 Ford. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Ford.
Diversification Opportunities for Microsoft and Ford
Poor diversification
The 3 months correlation between Microsoft and Ford is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Ford Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ford Motor 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 Ford. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ford Motor has no effect on the direction of Microsoft i.e., Microsoft and Ford go up and down completely randomly.
Pair Corralation between Microsoft and Ford
Given the investment horizon of 90 days Microsoft is expected to under-perform the Ford. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.91 times less risky than Ford. The stock trades about -0.22 of its potential returns per unit of risk. The Ford Motor is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 1,306 in Ford Motor on January 27, 2024 and sell it today you would lose (2.00) from holding Ford Motor or give up 0.15% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Microsoft vs. Ford Motor
Performance |
Timeline |
Microsoft |
Ford Motor |
Microsoft and Ford Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Microsoft and Ford
The main advantage of trading using opposite Microsoft and Ford positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Ford 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 Ford will offset losses from the drop in Ford's long position.Microsoft vs. Crowdstrike Holdings | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated | Microsoft vs. Cloudflare |
Ford vs. Hycroft Mining Holding | Ford vs. Imperial Petroleum | Ford vs. Exela Technologies | Ford vs. Camber Energy |
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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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