Correlation Between Microsoft and Indra Sistemas

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

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

Diversification Opportunities for Microsoft and Indra Sistemas

-0.17

Correlation Coefficient

Microsoft  Indra Sistemas

Good diversification

The 3 months correlation between Microsoft and Indra is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Indra Sistemas SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indra Sistemas SA 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 Indra Sistemas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indra Sistemas SA has no effect on the direction of Microsoft i.e., Microsoft and Indra Sistemas go up and down completely randomly.

Pair Corralation between Microsoft and Indra Sistemas

Given the investment horizon of 90 days Microsoft is expected to generate 0.43 times more return on investment than Indra Sistemas. However, Microsoft is 2.34 times less risky than Indra Sistemas. It trades about 0.11 of its potential returns per unit of risk. Indra Sistemas SA is currently generating about 0.04 per unit of risk. If you would invest  21,872  in Microsoft on September 26, 2024 and sell it today you would earn a total of  22,061  from holding Microsoft or generate 100.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Microsoft  vs.  Indra Sistemas SA

Microsoft

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 2 (%) 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.

Indra Sistemas SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Indra Sistemas SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Microsoft and Indra Sistemas

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

The idea behind Microsoft and Indra Sistemas SA 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.