Correlation Between Microsoft and IFS Capital

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

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

Diversification Opportunities for Microsoft and IFS Capital

-0.15

Correlation Coefficient

Microsoft  IFS Capital

Good diversification

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

Pair Corralation between Microsoft and IFS Capital

Given the investment horizon of 90 days Microsoft is expected to generate 1.64 times more return on investment than IFS Capital. However, Microsoft is 1.64 times more volatile than IFS Capital Public. It trades about 0.05 of its potential returns per unit of risk. IFS Capital Public is currently generating about -0.13 per unit of risk. If you would invest  43,048  in Microsoft on September 16, 2024 and sell it today you would earn a total of  1,679  from holding Microsoft or generate 3.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.38%
Values	Daily Returns

Microsoft  vs.  IFS Capital Public

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

IFS Capital Public

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IFS Capital Public has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, IFS Capital is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Microsoft and IFS Capital

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

The idea behind Microsoft and IFS Capital Public 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.