Correlation Between Microsoft and SPDR Barclays

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

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

Diversification Opportunities for Microsoft and SPDR Barclays

0.48

Correlation Coefficient

Microsoft  SPDR Barclays

Very weak diversification

The 3 months correlation between Microsoft and SPDR is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and SPDR Barclays Euro in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Barclays Euro 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 SPDR Barclays. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Barclays Euro has no effect on the direction of Microsoft i.e., Microsoft and SPDR Barclays go up and down completely randomly.

Pair Corralation between Microsoft and SPDR Barclays

Given the investment horizon of 90 days Microsoft is expected to generate 7.63 times more return on investment than SPDR Barclays. However, Microsoft is 7.63 times more volatile than SPDR Barclays Euro. It trades about 0.06 of its potential returns per unit of risk. SPDR Barclays Euro is currently generating about 0.18 per unit of risk. If you would invest  43,048  in Microsoft on September 14, 2024 and sell it today you would earn a total of  1,908  from holding Microsoft or generate 4.43% return on investment over 90 days.

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

Microsoft  vs.  SPDR Barclays Euro

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.

SPDR Barclays Euro

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Barclays Euro are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, SPDR Barclays is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Microsoft and SPDR Barclays

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

The idea behind Microsoft and SPDR Barclays Euro 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.