Correlation Between Microsoft and CSP
Can any of the company-specific risk be diversified away by investing in both Microsoft and CSP 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 CSP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and CSP Inc, you can compare the effects of market volatilities on Microsoft and CSP 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 CSP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and CSP.
Diversification Opportunities for Microsoft and CSP
Very weak diversification
The 3 months correlation between Microsoft and CSP is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and CSP Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CSP Inc 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 CSP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CSP Inc has no effect on the direction of Microsoft i.e., Microsoft and CSP go up and down completely randomly.
Pair Corralation between Microsoft and CSP
Given the investment horizon of 90 days Microsoft is expected to generate 0.23 times more return on investment than CSP. However, Microsoft is 4.36 times less risky than CSP. It trades about -0.21 of its potential returns per unit of risk. CSP Inc is currently generating about -0.2 per unit of risk. If you would invest 42,457 in Microsoft on January 31, 2024 and sell it today you would lose (2,232) from holding Microsoft or give up 5.26% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Microsoft vs. CSP Inc
Performance |
Timeline |
Microsoft |
CSP Inc |
Microsoft and CSP Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Microsoft and CSP
The main advantage of trading using opposite Microsoft and CSP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, CSP 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 CSP will offset losses from the drop in CSP's long position.Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated | Microsoft vs. Crowdstrike Holdings | Microsoft vs. Cloudflare |
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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