Correlation Between Microsoft Corp and International Business

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

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

Diversification Opportunities for Microsoft Corp and International Business

-0.64

Correlation Coefficient

Microsoft Corp  International Business

Excellent diversification

The 3 months correlation between Microsoft and International is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft Corp CDR and International Business Machine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Business and Microsoft Corp 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 Microsoft Corp CDR are associated (or correlated) with International Business. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Business has no effect on the direction of Microsoft Corp i.e., Microsoft Corp and International Business go up and down completely randomly.

Pair Corralation between Microsoft Corp and International Business

Assuming the 90 days trading horizon Microsoft Corp CDR is expected to under-perform the International Business. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft Corp CDR is 1.42 times less risky than International Business. The stock trades about -0.11 of its potential returns per unit of risk. The International Business Machines is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  3,354  in International Business Machines on December 29, 2024 and sell it today you would earn a total of  360.00  from holding International Business Machines or generate 10.73% return on investment over 90 days.

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

Microsoft Corp CDR  vs.  International Business Machine

Microsoft Corp CDR

Risk-Adjusted Performance

Very Weak

Over the last 90 days Microsoft Corp CDR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

International Business

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in International Business Machines are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal basic indicators, International Business may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Microsoft Corp and International Business

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

The idea behind Microsoft Corp CDR and International Business Machines 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 CEOs Directory module to screen CEOs from public companies around the world.