Correlation Between Microsoft and Jerusalem
Can any of the company-specific risk be diversified away by investing in both Microsoft and Jerusalem 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 Jerusalem into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Jerusalem, you can compare the effects of market volatilities on Microsoft and Jerusalem 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 Jerusalem. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Jerusalem.
Diversification Opportunities for Microsoft and Jerusalem
Poor diversification
The 3 months correlation between Microsoft and Jerusalem is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Jerusalem in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jerusalem 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 Jerusalem. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jerusalem has no effect on the direction of Microsoft i.e., Microsoft and Jerusalem go up and down completely randomly.
Pair Corralation between Microsoft and Jerusalem
Given the investment horizon of 90 days Microsoft is expected to generate 0.73 times more return on investment than Jerusalem. However, Microsoft is 1.38 times less risky than Jerusalem. It trades about 0.17 of its potential returns per unit of risk. Jerusalem is currently generating about 0.03 per unit of risk. If you would invest 32,541 in Microsoft on January 18, 2024 and sell it today you would earn a total of 8,917 from holding Microsoft or generate 27.4% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 81.3% |
| Values | Daily Returns |
Microsoft vs. Jerusalem
Performance |
| Timeline |
| Microsoft |
| Jerusalem |
Microsoft and Jerusalem Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Jerusalem
The main advantage of trading using opposite Microsoft and Jerusalem positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Jerusalem 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 Jerusalem will offset losses from the drop in Jerusalem's long position.| Microsoft vs. Cloudflare | Microsoft vs. Okta Inc | Microsoft vs. Adobe Systems Incorporated | Microsoft vs. Nutanix |
| Jerusalem vs. Mizrahi Tefahot | Jerusalem vs. First International Bank | Jerusalem vs. Israel Discount Bank | Jerusalem vs. Bank Leumi Le Israel |
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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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