Correlation Between Akamai Technologies and Microsoft Corp

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

Diversification Opportunities for Akamai Technologies and Microsoft Corp

0.46
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Akamai and Microsoft is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Akamai Technologies and Microsoft Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft Corp and Akamai Technologies 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 Akamai Technologies are associated (or correlated) with Microsoft Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft Corp has no effect on the direction of Akamai Technologies i.e., Akamai Technologies and Microsoft Corp go up and down completely randomly.

Pair Corralation between Akamai Technologies and Microsoft Corp

Given the investment horizon of 90 days Akamai Technologies is expected to generate 2.7 times less return on investment than Microsoft Corp. But when comparing it to its historical volatility, Akamai Technologies is 1.22 times less risky than Microsoft Corp. It trades about 0.08 of its potential returns per unit of risk. Microsoft Corp is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  25,176  in Microsoft Corp on May 16, 2022 and sell it today you would earn a total of  4,015  from holding Microsoft Corp or generate 15.95% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Akamai Technologies  vs.  Microsoft Corp

 Performance (%) 
       Timeline  
Akamai Technologies 
Akamai Performance
0 of 100
Over the last 90 days Akamai Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively steady basic indicators, Akamai Technologies is not utilizing all of its potentials. The current stock price chaos, may contribute to medium-term losses for the stakeholders.

Akamai Price Channel

Microsoft Corp 
Microsoft Performance
7 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, Microsoft Corp may actually be approaching a critical reversion point that can send shares even higher in September 2022.

Microsoft Price Channel

Akamai Technologies and Microsoft Corp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Akamai Technologies and Microsoft Corp

The main advantage of trading using opposite Akamai Technologies and Microsoft Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Akamai Technologies position performs unexpectedly, Microsoft Corp 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 Microsoft Corp will offset losses from the drop in Microsoft Corp's long position.

Akamai Technologies

Pair trading matchups for Akamai Technologies

Prog Hldgs vs. Akamai Technologies
Semiconductor Bear vs. Akamai Technologies
Rolls Royce vs. Akamai Technologies
Ark Innovation vs. Akamai Technologies
Universal Health vs. Akamai Technologies
Cto Realty vs. Akamai Technologies
Nike vs. Akamai Technologies
Olema Pharmaceuticals vs. Akamai Technologies
Horizon Therapeutics vs. Akamai Technologies
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Akamai Technologies as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Akamai Technologies' systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Akamai Technologies' unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Akamai Technologies.
The idea behind Akamai Technologies and Microsoft Corp 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.

Microsoft Corp

Pair trading matchups for Microsoft Corp

Cto Realty vs. Microsoft Corp
Nike vs. Microsoft Corp
Rolls Royce vs. Microsoft Corp
Prog Hldgs vs. Microsoft Corp
Horizon Therapeutics vs. Microsoft Corp
Universal Health vs. Microsoft Corp
Ark Innovation vs. Microsoft Corp
Essential Properties vs. Microsoft Corp
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Microsoft Corp as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Microsoft Corp's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Microsoft Corp's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Microsoft Corp.
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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.

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