Correlation Between Twitter and Microsoft
Can any of the company-specific risk be diversified away by investing in both Twitter 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 Twitter and Microsoft into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Twitter and Microsoft, you can compare the effects of market volatilities on Twitter 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 Twitter with a short position of Microsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of Twitter and Microsoft.
Diversification Opportunities for Twitter and Microsoft
Very weak diversification
The 3 months correlation between Twitter and Microsoft is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Twitter and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and Twitter 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 Twitter 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 Twitter i.e., Twitter and Microsoft go up and down completely randomly.
Pair Corralation between Twitter and Microsoft
Given the investment horizon of 90 days Twitter is expected to generate 2.18 times more return on investment than Microsoft. However, Twitter is 2.18 times more volatile than Microsoft. It trades about 0.06 of its potential returns per unit of risk. Microsoft is currently generating about 0.04 per unit of risk. If you would invest 4,069 in Twitter on December 19, 2023 and sell it today you would earn a total of 1,301 from holding Twitter or generate 31.97% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 30.1% |
Values | Daily Returns |
Twitter vs. Microsoft
Performance |
Timeline |
Risk-Adjusted Performance
0 of 100
Low | High |
Very Weak
Microsoft |
Twitter and Microsoft Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Twitter and Microsoft
The main advantage of trading using opposite Twitter and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Twitter 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.Twitter vs. Air Transport Services | Twitter vs. Nok Airlines Public | Twitter vs. Hawaiian Holdings | Twitter vs. United Airlines Holdings |
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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 the Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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