Correlation Between INTER CARS and Microsoft

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

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

Diversification Opportunities for INTER CARS and Microsoft

0.6

Correlation Coefficient

INTER CARS  Microsoft

Poor diversification

The 3 months correlation between INTER and Microsoft is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding INTER CARS SA and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and INTER CARS 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 INTER CARS SA 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 INTER CARS i.e., INTER CARS and Microsoft go up and down completely randomly.

Pair Corralation between INTER CARS and Microsoft

Assuming the 90 days horizon INTER CARS SA is expected to generate 1.35 times more return on investment than Microsoft. However, INTER CARS is 1.35 times more volatile than Microsoft. It trades about 0.12 of its potential returns per unit of risk. Microsoft is currently generating about 0.1 per unit of risk. If you would invest  11,580  in INTER CARS SA on October 21, 2024 and sell it today you would earn a total of  1,720  from holding INTER CARS SA or generate 14.85% return on investment over 90 days.

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

INTER CARS SA  vs.  Microsoft

INTER CARS SA

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in INTER CARS SA are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, INTER CARS reported solid returns over the last few months and may actually be approaching a breakup point.

Microsoft

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with INTER CARS and Microsoft

The main advantage of trading using opposite INTER CARS and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if INTER CARS 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 INTER CARS SA 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.