Correlation Between Microsoft and IHIT

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

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

Diversification Opportunities for Microsoft and IHIT

-0.36

Correlation Coefficient

Microsoft  IHIT

Very good diversification

The 3 months correlation between Microsoft and IHIT is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and IHIT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IHIT 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 IHIT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IHIT has no effect on the direction of Microsoft i.e., Microsoft and IHIT go up and down completely randomly.

Pair Corralation between Microsoft and IHIT

If you would invest  40,862  in Microsoft on September 1, 2024 and sell it today you would earn a total of  1,484  from holding Microsoft or generate 3.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	1.59%
Values	Daily Returns

Microsoft  vs.  IHIT

Microsoft

Risk-Adjusted Performance

3 of 100

Insignificant

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

IHIT

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IHIT has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable forward indicators, IHIT is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Microsoft and IHIT

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

The idea behind Microsoft and IHIT 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.