Correlation Between Microsoft and WisdomTree Equity

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

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

Diversification Opportunities for Microsoft and WisdomTree Equity

0.15

Correlation Coefficient

Microsoft  WisdomTree Equity

Average diversification

The 3 months correlation between Microsoft and WisdomTree is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and WisdomTree Equity Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Equity Income 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 WisdomTree Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Equity Income has no effect on the direction of Microsoft i.e., Microsoft and WisdomTree Equity go up and down completely randomly.

Pair Corralation between Microsoft and WisdomTree Equity

Given the investment horizon of 90 days Microsoft is expected to generate 1.7 times less return on investment than WisdomTree Equity. In addition to that, Microsoft is 2.44 times more volatile than WisdomTree Equity Income. It trades about 0.06 of its total potential returns per unit of risk. WisdomTree Equity Income is currently generating about 0.26 per unit of volatility. If you would invest  2,911  in WisdomTree Equity Income on September 13, 2024 and sell it today you would earn a total of  254.00  from holding WisdomTree Equity Income or generate 8.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Microsoft  vs.  WisdomTree Equity Income

Microsoft

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 4 (%) 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.

WisdomTree Equity Income

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Equity Income are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, WisdomTree Equity may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Microsoft and WisdomTree Equity

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

The idea behind Microsoft and WisdomTree Equity 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.