Correlation Between INTERCONT HOTELS and Microsoft

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

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

Diversification Opportunities for INTERCONT HOTELS and Microsoft

0.84

Correlation Coefficient

INTERCONT HOTELS  Microsoft

Very poor diversification

The 3 months correlation between INTERCONT and Microsoft is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding INTERCONT HOTELS and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and INTERCONT HOTELS 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 INTERCONT HOTELS 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 INTERCONT HOTELS i.e., INTERCONT HOTELS and Microsoft go up and down completely randomly.

Pair Corralation between INTERCONT HOTELS and Microsoft

Assuming the 90 days trading horizon INTERCONT HOTELS is expected to generate 1.32 times more return on investment than Microsoft. However, INTERCONT HOTELS is 1.32 times more volatile than Microsoft. It trades about 0.17 of its potential returns per unit of risk. Microsoft is currently generating about 0.08 per unit of risk. If you would invest  10,200  in INTERCONT HOTELS on October 26, 2024 and sell it today you would earn a total of  2,100  from holding INTERCONT HOTELS or generate 20.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.33%
Values	Daily Returns

INTERCONT HOTELS  vs.  Microsoft

INTERCONT HOTELS

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in INTERCONT HOTELS are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, INTERCONT HOTELS reported solid returns over the last few months and may actually be approaching a breakup point.

Microsoft

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with INTERCONT HOTELS and Microsoft

The main advantage of trading using opposite INTERCONT HOTELS and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if INTERCONT HOTELS 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 INTERCONT HOTELS 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.