Correlation Between Microsoft and Ivy Small

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

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

Diversification Opportunities for Microsoft and Ivy Small

0.61

Correlation Coefficient

Microsoft  Ivy Small

Poor diversification

The 3 months correlation between Microsoft and Ivy is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Ivy Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ivy Small Cap 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 Ivy Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ivy Small Cap has no effect on the direction of Microsoft i.e., Microsoft and Ivy Small go up and down completely randomly.

Pair Corralation between Microsoft and Ivy Small

Given the investment horizon of 90 days Microsoft is expected to under-perform the Ivy Small. In addition to that, Microsoft is 1.44 times more volatile than Ivy Small Cap. It trades about -0.1 of its total potential returns per unit of risk. Ivy Small Cap is currently generating about -0.07 per unit of volatility. If you would invest  2,021  in Ivy Small Cap on December 26, 2024 and sell it today you would lose (102.00) from holding Ivy Small Cap or give up 5.05% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Microsoft  vs.  Ivy Small Cap

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.

Ivy Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ivy Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Ivy Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Microsoft and Ivy Small

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

The idea behind Microsoft and Ivy Small Cap 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.