Correlation Between Microsoft Corp and Black Knight

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

Diversification Opportunities for Microsoft Corp and Black Knight

0.11
  Correlation Coefficient

Average diversification

The 3 months correlation between Microsoft and Black is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft Corp and Black Knight in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Black Knight and Microsoft Corp 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 Corp are associated (or correlated) with Black Knight. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Black Knight has no effect on the direction of Microsoft Corp i.e., Microsoft Corp and Black Knight go up and down completely randomly.

Pair Corralation between Microsoft Corp and Black Knight

Given the investment horizon of 90 days Microsoft Corp is expected to under-perform the Black Knight. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft Corp is 1.11 times less risky than Black Knight. The stock trades about -0.03 of its potential returns per unit of risk. The Black Knight is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  7,687  in Black Knight on May 13, 2022 and sell it today you would lose (1,085)  from holding Black Knight or give up 14.11% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Microsoft Corp  vs.  Black Knight

 Performance (%) 
       Timeline  
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

Black Knight 
Black Performance
0 of 100
Over the last 90 days Black Knight has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward-looking signals, Black Knight is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Black Price Channel

Microsoft Corp and Black Knight Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Microsoft Corp and Black Knight

The main advantage of trading using opposite Microsoft Corp and Black Knight positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft Corp position performs unexpectedly, Black Knight 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 Black Knight will offset losses from the drop in Black Knight's long position.
The idea behind Microsoft Corp and Black Knight 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.
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.

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