Correlation Between Microsoft and Deutsche Bank
Can any of the company-specific risk be diversified away by investing in both Microsoft and Deutsche Bank 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 Deutsche Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Deutsche Bank AG, you can compare the effects of market volatilities on Microsoft and Deutsche Bank 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 Deutsche Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Deutsche Bank.
Diversification Opportunities for Microsoft and Deutsche Bank
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Microsoft and Deutsche is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Deutsche Bank AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deutsche Bank AG 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 Deutsche Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deutsche Bank AG has no effect on the direction of Microsoft i.e., Microsoft and Deutsche Bank go up and down completely randomly.
Pair Corralation between Microsoft and Deutsche Bank
Given the investment horizon of 90 days Microsoft is expected to generate 1.02 times less return on investment than Deutsche Bank. But when comparing it to its historical volatility, Microsoft is 1.26 times less risky than Deutsche Bank. It trades about 0.06 of its potential returns per unit of risk. Deutsche Bank AG is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 1,033 in Deutsche Bank AG on January 16, 2024 and sell it today you would earn a total of 518.00 from holding Deutsche Bank AG or generate 50.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Deutsche Bank AG
Performance |
| Timeline |
| Microsoft |
| Deutsche Bank AG |
Microsoft and Deutsche Bank Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Deutsche Bank
The main advantage of trading using opposite Microsoft and Deutsche Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Deutsche Bank 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 Deutsche Bank will offset losses from the drop in Deutsche Bank's long position.| Microsoft vs. Cloudflare | Microsoft vs. Okta Inc | Microsoft vs. Adobe Systems Incorporated | Microsoft vs. Nutanix |
| Deutsche Bank vs. Banco Bradesco SA | Deutsche Bank vs. Itau Unibanco Banco | Deutsche Bank vs. Lloyds Banking Group | Deutsche Bank vs. Banco Santander Brasil |
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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