Correlation Between Palantir Technologies and Microsoft

Can any of the company-specific risk be diversified away by investing in both Palantir Technologies 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 Palantir Technologies and Microsoft into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Palantir Technologies Class and Microsoft, you can compare the effects of market volatilities on Palantir Technologies 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 Palantir Technologies with a short position of Microsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of Palantir Technologies and Microsoft.

Diversification Opportunities for Palantir Technologies and Microsoft

0.07

Correlation Coefficient

Palantir Technologies  Microsoft

Significant diversification

The 3 months correlation between Palantir and Microsoft is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Palantir Technologies Class and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and Palantir Technologies 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 Palantir Technologies Class 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 Palantir Technologies i.e., Palantir Technologies and Microsoft go up and down completely randomly.

Pair Corralation between Palantir Technologies and Microsoft

Given the investment horizon of 90 days Palantir Technologies Class is expected to generate 3.29 times more return on investment than Microsoft. However, Palantir Technologies is 3.29 times more volatile than Microsoft. It trades about 0.29 of its potential returns per unit of risk. Microsoft is currently generating about 0.03 per unit of risk. If you would invest  3,148  in Palantir Technologies Class on August 30, 2024 and sell it today you would earn a total of  3,457  from holding Palantir Technologies Class or generate 109.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Palantir Technologies Class  vs.  Microsoft

Palantir Technologies

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Palantir Technologies Class are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal basic indicators, Palantir Technologies reported solid returns over the last few months and may actually be approaching a breakup point.

Microsoft

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 2 (%) 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.

Pair Trading with Palantir Technologies and Microsoft

The main advantage of trading using opposite Palantir Technologies and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Palantir Technologies 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.

The idea behind Palantir Technologies Class 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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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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.