Correlation Between Microsoft and Verizon Communications
Can any of the company-specific risk be diversified away by investing in both Microsoft and Verizon Communications 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 Verizon Communications into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Verizon Communications, you can compare the effects of market volatilities on Microsoft and Verizon Communications 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 Verizon Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Verizon Communications.
Diversification Opportunities for Microsoft and Verizon Communications
0.22 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Microsoft and Verizon is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Verizon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications 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 Verizon Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Verizon Communications has no effect on the direction of Microsoft i.e., Microsoft and Verizon Communications go up and down completely randomly.
Pair Corralation between Microsoft and Verizon Communications
Given the investment horizon of 90 days Microsoft is expected to generate 0.92 times more return on investment than Verizon Communications. However, Microsoft is 1.08 times less risky than Verizon Communications. It trades about 0.12 of its potential returns per unit of risk. Verizon Communications is currently generating about 0.05 per unit of risk. If you would invest 27,318 in Microsoft on January 20, 2024 and sell it today you would earn a total of 13,109 from holding Microsoft or generate 47.99% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Verizon Communications
Performance |
| Timeline |
| Microsoft |
| Verizon Communications |
Microsoft and Verizon Communications Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Verizon Communications
The main advantage of trading using opposite Microsoft and Verizon Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Verizon Communications 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 Verizon Communications will offset losses from the drop in Verizon Communications' long position.| Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated | Microsoft vs. Crowdstrike Holdings | Microsoft vs. Cloudflare |
| Verizon Communications vs. Grab Holdings | Verizon Communications vs. Cadence Design Systems | Verizon Communications vs. Aquagold International | Verizon Communications vs. Thrivent High Yield |
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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.
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