Correlation Between IShares Nikkei and IncomeShares Microsoft

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

By analyzing existing cross correlation between iShares Nikkei 225 and IncomeShares Microsoft Options, you can compare the effects of market volatilities on IShares Nikkei and IncomeShares 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 IShares Nikkei with a short position of IncomeShares Microsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Nikkei and IncomeShares Microsoft.

Diversification Opportunities for IShares Nikkei and IncomeShares Microsoft

0.51

Correlation Coefficient

IShares Nikkei  IncomeShares Microsoft

Very weak diversification

The 3 months correlation between IShares and IncomeShares is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding iShares Nikkei 225 and IncomeShares Microsoft Options in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IncomeShares Microsoft and IShares Nikkei 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 iShares Nikkei 225 are associated (or correlated) with IncomeShares Microsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IncomeShares Microsoft has no effect on the direction of IShares Nikkei i.e., IShares Nikkei and IncomeShares Microsoft go up and down completely randomly.

Pair Corralation between IShares Nikkei and IncomeShares Microsoft

Assuming the 90 days trading horizon IShares Nikkei is expected to generate 4.57 times less return on investment than IncomeShares Microsoft. In addition to that, IShares Nikkei is 1.25 times more volatile than IncomeShares Microsoft Options. It trades about 0.02 of its total potential returns per unit of risk. IncomeShares Microsoft Options is currently generating about 0.14 per unit of volatility. If you would invest  918.00  in IncomeShares Microsoft Options on October 3, 2024 and sell it today you would earn a total of  34.00  from holding IncomeShares Microsoft Options or generate 3.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	49.18%
Values	Daily Returns

iShares Nikkei 225  vs.  IncomeShares Microsoft Options

iShares Nikkei 225

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Nikkei 225 are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, IShares Nikkei is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

IncomeShares Microsoft

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in IncomeShares Microsoft Options are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, IncomeShares Microsoft may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with IShares Nikkei and IncomeShares Microsoft

The main advantage of trading using opposite IShares Nikkei and IncomeShares Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Nikkei position performs unexpectedly, IncomeShares 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 IncomeShares Microsoft will offset losses from the drop in IncomeShares Microsoft's long position.

The idea behind iShares Nikkei 225 and IncomeShares Microsoft Options 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.