Correlation Between PACCAR and Microsoft

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

Diversification Opportunities for PACCAR and Microsoft

-0.04
  Correlation Coefficient

Good diversification

The 3 months correlation between PACCAR and Microsoft is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding PACCAR Inc and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and PACCAR 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 PACCAR Inc are associated (or correlated) with Microsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft has no effect on the direction of PACCAR i.e., PACCAR and Microsoft go up and down completely randomly.

Pair Corralation between PACCAR and Microsoft

Given the investment horizon of 90 days PACCAR is expected to generate 1.75 times less return on investment than Microsoft. But when comparing it to its historical volatility, PACCAR Inc is 2.89 times less risky than Microsoft. It trades about 0.4 of its potential returns per unit of risk. Microsoft is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  22,723  in Microsoft on September 6, 2022 and sell it today you would earn a total of  2,779  from holding Microsoft or generate 12.23% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

PACCAR Inc  vs.  Microsoft

 Performance (%) 
       Timeline  
PACCAR Inc 
PACCAR Performance
15 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in PACCAR Inc are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, PACCAR reported solid returns over the last few months and may actually be approaching a breakup point.

PACCAR Price Channel

Microsoft 
Microsoft Performance
1 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 1 (%) 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.

Microsoft Price Channel

PACCAR and Microsoft Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with PACCAR and Microsoft

The main advantage of trading using opposite PACCAR and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PACCAR position performs unexpectedly, Microsoft 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 Microsoft will offset losses from the drop in Microsoft's long position.
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The idea behind PACCAR Inc and Microsoft 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.
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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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.

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