Correlation Between Microsoft and Invesco EQQQ

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

By analyzing existing cross correlation between Microsoft and Invesco EQQQ NASDAQ 100, you can compare the effects of market volatilities on Microsoft and Invesco EQQQ 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 Invesco EQQQ. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Invesco EQQQ.

Diversification Opportunities for Microsoft and Invesco EQQQ

0.61

Correlation Coefficient

Microsoft  Invesco EQQQ

Poor diversification

The 3 months correlation between Microsoft and Invesco is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Invesco EQQQ NASDAQ 100 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco EQQQ NASDAQ 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 Invesco EQQQ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco EQQQ NASDAQ has no effect on the direction of Microsoft i.e., Microsoft and Invesco EQQQ go up and down completely randomly.

Pair Corralation between Microsoft and Invesco EQQQ

Given the investment horizon of 90 days Microsoft is expected to generate 1.42 times less return on investment than Invesco EQQQ. In addition to that, Microsoft is 1.27 times more volatile than Invesco EQQQ NASDAQ 100. It trades about 0.11 of its total potential returns per unit of risk. Invesco EQQQ NASDAQ 100 is currently generating about 0.2 per unit of volatility. If you would invest  48,744  in Invesco EQQQ NASDAQ 100 on September 27, 2024 and sell it today you would earn a total of  1,986  from holding Invesco EQQQ NASDAQ 100 or generate 4.07% return on investment over 90 days.

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

Microsoft  vs.  Invesco EQQQ NASDAQ 100

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

Invesco EQQQ NASDAQ

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco EQQQ NASDAQ 100 are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Invesco EQQQ sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Invesco EQQQ

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

The idea behind Microsoft and Invesco EQQQ NASDAQ 100 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.