Correlation Between Microsoft and Alphabet

By analyzing existing cross correlation between Microsoft and Alphabet you can compare the effects of market volatilities on Microsoft and Alphabet 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 Alphabet. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Alphabet.

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Can any of the company-specific risk be diversified away by investing in both Microsoft and Alphabet at the same time? Although using correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combing Microsoft and Alphabet into the same portfolio which is an essential part of fundamental portfolio management process.

Diversification Opportunities for Microsoft and Alphabet

0.86
Correlation
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Very poor diversification

The 3 months correlation between Microsoft and Alphabet is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft Corp. and Alphabet Inc in the same portfolio assuming nothing else is changed. The correlation between historical prices or returns on Alphabet 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 Alphabet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alphabet has no effect on the direction of Microsoft i.e. Microsoft and Alphabet go up and down completely randomly.

Pair Corralation between Microsoft and Alphabet

Given the investment horizon of 30 days, Microsoft is expected to generate 1.19 times more return on investment than Alphabet. However, Microsoft is 1.19 times more volatile than Alphabet. It trades about 0.05 of its potential returns per unit of risk. Alphabet is currently generating about 0.02 per unit of risk. If you would invest  17,017  in Microsoft on April 26, 2020 and sell it today you would earn a total of  1,334  from holding Microsoft or generate 7.84% return on investment over 30 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Microsoft Corp.  vs.  Alphabet Inc

 Performance (%) 
      Timeline 
Microsoft 
33

Microsoft Risk-Adjusted Performance

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 3 (%) of all global equities and portfolios over the last 30 days. In spite of comparatively weak essential indicators, Microsoft unveiled solid returns over the last few months and may actually be approaching a breakup point.
Alphabet 
11

Alphabet Risk-Adjusted Performance

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet are ranked lower than 1 (%) of all global equities and portfolios over the last 30 days. In spite of rather sound fundamental drivers, Alphabet is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Microsoft and Alphabet Volatility Contrast

 Predicted Return Density 
      Returns 
Check out your portfolio center. Please also try Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.


 
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