Correlation Between Microsoft and International Stock

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

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

Diversification Opportunities for Microsoft and International Stock

-0.37

Correlation Coefficient

Microsoft  International Stock

Very good diversification

The 3 months correlation between Microsoft and International is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and International Stock Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Stock 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 International Stock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Stock has no effect on the direction of Microsoft i.e., Microsoft and International Stock go up and down completely randomly.

Pair Corralation between Microsoft and International Stock

Given the investment horizon of 90 days Microsoft is expected to generate 1.51 times more return on investment than International Stock. However, Microsoft is 1.51 times more volatile than International Stock Fund. It trades about 0.06 of its potential returns per unit of risk. International Stock Fund is currently generating about -0.2 per unit of risk. If you would invest  42,574  in Microsoft on September 26, 2024 and sell it today you would earn a total of  1,359  from holding Microsoft or generate 3.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	97.62%
Values	Daily Returns

Microsoft  vs.  International Stock Fund

Microsoft

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 2 (%) 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.

International Stock

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days International Stock Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Microsoft and International Stock

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

The idea behind Microsoft and International Stock Fund 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.