Correlation Between Microsoft and Deka IBoxx

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

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

Diversification Opportunities for Microsoft and Deka IBoxx

0.7

Correlation Coefficient

Microsoft  Deka IBoxx

Poor diversification

The 3 months correlation between Microsoft and Deka is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Deka iBoxx EUR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deka iBoxx EUR 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 Deka IBoxx. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deka iBoxx EUR has no effect on the direction of Microsoft i.e., Microsoft and Deka IBoxx go up and down completely randomly.

Pair Corralation between Microsoft and Deka IBoxx

Given the investment horizon of 90 days Microsoft is expected to generate 5.48 times more return on investment than Deka IBoxx. However, Microsoft is 5.48 times more volatile than Deka iBoxx EUR. It trades about 0.02 of its potential returns per unit of risk. Deka iBoxx EUR is currently generating about 0.07 per unit of risk. If you would invest  43,264  in Microsoft on September 21, 2024 and sell it today you would earn a total of  433.00  from holding Microsoft or generate 1.0% return on investment over 90 days.

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

Microsoft  vs.  Deka iBoxx EUR

Microsoft

Risk-Adjusted Performance

1 of 100

Weak

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 latest stock price uproar, may contribute to short-horizon losses for the private investors.

Deka iBoxx EUR

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Deka iBoxx EUR are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Deka IBoxx is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Microsoft and Deka IBoxx

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

The idea behind Microsoft and Deka iBoxx EUR 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.