Correlation Between Microsoft and Boeing

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Can any of the company-specific risk be diversified away by investing in both Microsoft and Boeing 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 Boeing into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and The Boeing, you can compare the effects of market volatilities on Microsoft and Boeing 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 Boeing. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Boeing.

Diversification Opportunities for Microsoft and Boeing

0.32
  Correlation Coefficient

Weak diversification

The 3 months correlation between Microsoft and Boeing is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and The Boeing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Boeing 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 Boeing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Boeing has no effect on the direction of Microsoft i.e., Microsoft and Boeing go up and down completely randomly.

Pair Corralation between Microsoft and Boeing

Given the investment horizon of 90 days Microsoft is expected to generate 1.16 times more return on investment than Boeing. However, Microsoft is 1.16 times more volatile than The Boeing. It trades about 0.29 of its potential returns per unit of risk. The Boeing is currently generating about 0.31 per unit of risk. If you would invest  22,077  in Microsoft on September 5, 2022 and sell it today you would earn a total of  3,425  from holding Microsoft or generate 15.51% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Microsoft  vs.  The Boeing

 Performance (%) 
       Timeline  
Microsoft 
Microsoft Performance
1 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Microsoft Price Channel

Boeing 
Boeing Performance
8 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in The Boeing are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Boeing sustained solid returns over the last few months and may actually be approaching a breakup point.

Boeing Price Channel

Microsoft and Boeing Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Microsoft and Boeing

The main advantage of trading using opposite Microsoft and Boeing positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Boeing 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 Boeing will offset losses from the drop in Boeing's long position.
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The idea behind Microsoft and The Boeing pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.

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