Correlation Between Microsoft and BlackRock Municipal

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

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

Diversification Opportunities for Microsoft and BlackRock Municipal

0.18

Correlation Coefficient

Microsoft  BlackRock Municipal

Average diversification

The 3 months correlation between Microsoft and BlackRock is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and BlackRock Municipal Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BlackRock Municipal and Microsoft 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 are associated (or correlated) with BlackRock Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BlackRock Municipal has no effect on the direction of Microsoft i.e., Microsoft and BlackRock Municipal go up and down completely randomly.

Pair Corralation between Microsoft and BlackRock Municipal

Given the investment horizon of 90 days Microsoft is expected to generate 2.39 times more return on investment than BlackRock Municipal. However, Microsoft is 2.39 times more volatile than BlackRock Municipal Income. It trades about 0.05 of its potential returns per unit of risk. BlackRock Municipal Income is currently generating about 0.0 per unit of risk. If you would invest  40,862  in Microsoft on August 31, 2024 and sell it today you would earn a total of  1,437  from holding Microsoft or generate 3.52% return on investment over 90 days.

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

Microsoft  vs.  BlackRock Municipal Income

Microsoft

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

BlackRock Municipal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BlackRock Municipal Income has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent technical and fundamental indicators, BlackRock Municipal is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Microsoft and BlackRock Municipal

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

The idea behind Microsoft and BlackRock Municipal Income 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.