Correlation Between Microsoft and Continental

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

Diversification Opportunities for Microsoft and Continental

-0.17
  Correlation Coefficient

Good diversification

The 3 months correlation between Microsoft and Continental is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Caleres in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Continental 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 Continental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Continental has no effect on the direction of Microsoft i.e., Microsoft and Continental go up and down completely randomly.

Pair Corralation between Microsoft and Continental

Given the investment horizon of 90 days Microsoft is expected to generate 0.7 times more return on investment than Continental. However, Microsoft is 1.43 times less risky than Continental. It trades about 0.28 of its potential returns per unit of risk. Caleres is currently generating about -0.2 per unit of risk. If you would invest  21,948  in Microsoft on September 3, 2022 and sell it today you would earn a total of  3,521  from holding Microsoft or generate 16.04% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Microsoft  vs.  Caleres

 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

Continental 
Continental Performance
0 of 100
Over the last 90 days Caleres has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest unsteady performance, the Stock's basic indicators remain steady and the new chaos on Wall Street may also be a sign of medium-term gains for the company stakeholders.

Continental Price Channel

Microsoft and Continental Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Microsoft and Continental

The main advantage of trading using opposite Microsoft and Continental positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Continental 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 Continental will offset losses from the drop in Continental's long position.
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Microsoft vs. Anheuser-Busch InBev SANV
The idea behind Microsoft and Caleres 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.
Continental vs. Anheuser Busch Inbev
Continental vs. Etsy Inc
Continental vs. Anheuser-Busch InBev SANV
Continental vs. Linde PLC
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 Stock Screener module to find equities using custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..

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