Correlation Between Microsoft and Veritiv Cor

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

Diversification Opportunities for Microsoft and Veritiv Cor

0.83
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Microsoft and Veritiv is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Veritiv Cor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Veritiv Cor 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 Veritiv Cor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Veritiv Cor has no effect on the direction of Microsoft i.e., Microsoft and Veritiv Cor go up and down completely randomly.

Pair Corralation between Microsoft and Veritiv Cor

Given the investment horizon of 90 days Microsoft is expected to generate 0.64 times more return on investment than Veritiv Cor. However, Microsoft is 1.56 times less risky than Veritiv Cor. It trades about 0.06 of its potential returns per unit of risk. Veritiv Cor is currently generating about 0.02 per unit of risk. If you would invest  26,828  in Microsoft on December 29, 2023 and sell it today you would earn a total of  15,315  from holding Microsoft or generate 57.09% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy82.38%
ValuesDaily Returns

Microsoft  vs.  Veritiv Cor

 Performance 
       Timeline  
Microsoft 

Risk-Adjusted Performance

12 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in April 2024.
Veritiv Cor 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days Veritiv Cor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Veritiv Cor is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Microsoft and Veritiv Cor Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Microsoft and Veritiv Cor

The main advantage of trading using opposite Microsoft and Veritiv Cor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Veritiv Cor 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 Veritiv Cor will offset losses from the drop in Veritiv Cor's long position.
The idea behind Microsoft and Veritiv Cor 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 the Fundamental Analysis module to view fundamental data based on most recent published financial statements.

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