Correlation Between InterContinental and Microsoft

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

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

Diversification Opportunities for InterContinental and Microsoft

0.86

Correlation Coefficient

InterContinental  Microsoft

Very poor diversification

The 3 months correlation between InterContinental and Microsoft is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding InterContinental Hotels Group and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and InterContinental 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 InterContinental Hotels Group 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 InterContinental i.e., InterContinental and Microsoft go up and down completely randomly.

Pair Corralation between InterContinental and Microsoft

Assuming the 90 days trading horizon InterContinental Hotels Group is expected to generate 0.83 times more return on investment than Microsoft. However, InterContinental Hotels Group is 1.2 times less risky than Microsoft. It trades about -0.1 of its potential returns per unit of risk. Microsoft is currently generating about -0.15 per unit of risk. If you would invest  12,200  in InterContinental Hotels Group on October 8, 2024 and sell it today you would lose (200.00) from holding InterContinental Hotels Group or give up 1.64% of portfolio value over 90 days.

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

InterContinental Hotels Group  vs.  Microsoft

InterContinental Hotels

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in InterContinental Hotels Group are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, InterContinental reported solid returns over the last few months and may actually be approaching a breakup point.

Microsoft

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively 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 InterContinental and Microsoft

The main advantage of trading using opposite InterContinental and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if InterContinental 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 InterContinental Hotels Group 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.