Correlation Between Microsoft and IOST
Can any of the company-specific risk be diversified away by investing in both Microsoft and IOST 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 IOST into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and IOST, you can compare the effects of market volatilities on Microsoft and IOST 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 IOST. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and IOST.
Diversification Opportunities for Microsoft and IOST
Poor diversification
The 3 months correlation between Microsoft and IOST is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and IOST in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IOST 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 IOST. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IOST has no effect on the direction of Microsoft i.e., Microsoft and IOST go up and down completely randomly.
Pair Corralation between Microsoft and IOST
Given the investment horizon of 90 days Microsoft is expected to generate 0.28 times more return on investment than IOST. However, Microsoft is 3.55 times less risky than IOST. It trades about -0.11 of its potential returns per unit of risk. IOST is currently generating about -0.11 per unit of risk. If you would invest 42,398 in Microsoft on December 30, 2024 and sell it today you would lose (4,518) from holding Microsoft or give up 10.66% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 95.38% |
Values | Daily Returns |
Microsoft vs. IOST
Performance |
Timeline |
Microsoft |
IOST |
Microsoft and IOST Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Microsoft and IOST
The main advantage of trading using opposite Microsoft and IOST positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, IOST 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 IOST will offset losses from the drop in IOST's long position.Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Adobe Systems Incorporated | Microsoft vs. Crowdstrike Holdings |
Check out your portfolio center.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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.
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