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

0.4

Correlation Coefficient

Microsoft  IOST

Very weak diversification

The 3 months correlation between Microsoft and IOST is 0.4. 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 0.22 times more return on investment than IOST. However, Microsoft is 4.54 times less risky than IOST. It trades about -0.08 of its potential returns per unit of risk. IOST is currently generating about -0.17 per unit of risk. If you would invest  43,012  in Microsoft on December 1, 2024 and sell it today you would lose (3,313) from holding Microsoft or give up 7.7% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	93.75%
Values	Daily Returns

Microsoft  vs.  IOST

Microsoft

Risk-Adjusted Performance

Very Weak

Over the last 90 days Microsoft has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

IOST

Risk-Adjusted Performance

Very Weak

Over the last 90 days IOST has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Crypto's fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for IOST shareholders.

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.

The idea behind Microsoft and IOST 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.

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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.