Correlation Between Microsoft and ProShares Large

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

By analyzing existing cross correlation between Microsoft and ProShares Large Cap, you can compare the effects of market volatilities on Microsoft and ProShares Large 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 ProShares Large. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and ProShares Large.

Diversification Opportunities for Microsoft and ProShares Large

0.24

Correlation Coefficient

Microsoft  ProShares Large

Modest diversification

The 3 months correlation between Microsoft and ProShares is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and ProShares Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares Large Cap 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 ProShares Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares Large Cap has no effect on the direction of Microsoft i.e., Microsoft and ProShares Large go up and down completely randomly.

Pair Corralation between Microsoft and ProShares Large

Given the investment horizon of 90 days Microsoft is expected to generate 1.26 times more return on investment than ProShares Large. However, Microsoft is 1.26 times more volatile than ProShares Large Cap. It trades about 0.48 of its potential returns per unit of risk. ProShares Large Cap is currently generating about -0.08 per unit of risk. If you would invest  41,696  in Microsoft on September 20, 2024 and sell it today you would earn a total of  3,750  from holding Microsoft or generate 8.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Microsoft  vs.  ProShares Large Cap

Microsoft

Risk-Adjusted Performance

1 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 1 (%) 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 current stock price uproar, may contribute to short-horizon losses for the private investors.

ProShares Large Cap

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares Large Cap are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, ProShares Large is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Microsoft and ProShares Large

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

The idea behind Microsoft and ProShares Large Cap 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.