Can any of the company-specific risk be diversified away by investing in both Microsoft and Aama Income 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 Aama Income into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Aama Income Fund, you can compare the effects of market volatilities on Microsoft and Aama Income 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 Aama Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Aama Income.
Diversification Opportunities for Microsoft and Aama Income
The 3 months correlation between Microsoft and AAMA is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Aama Income Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aama Income Fund 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 Aama Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aama Income Fund has no effect on the direction of Microsoft i.e., Microsoft and Aama Income go up and down completely randomly.
Pair Corralation between Microsoft and Aama Income
Given the investment horizon of 90 days Microsoft is expected to generate 13.31 times more return on investment than Aama Income. However, Microsoft is 13.31 times more volatile than Aama Income Fund. It trades about 0.05 of its potential returns per unit of risk. Aama Income Fund is currently generating about 0.09 per unit of risk. If you would invest 40,137 in Microsoft on March 6, 2024 and sell it today you would earn a total of 1,470 from holding Microsoft or generate 3.66% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.
Compared to the overall equity markets, risk-adjusted returns on investments in Aama Income Fund are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Aama Income is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.