Correlation Between Microsoft and IShares Russell

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

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

Diversification Opportunities for Microsoft and IShares Russell

0.69

Correlation Coefficient

Microsoft  IShares Russell

Poor diversification

The 3 months correlation between Microsoft and IShares is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and iShares Russell Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Russell Mid 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 IShares Russell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Russell Mid has no effect on the direction of Microsoft i.e., Microsoft and IShares Russell go up and down completely randomly.

Pair Corralation between Microsoft and IShares Russell

Given the investment horizon of 90 days Microsoft is expected to under-perform the IShares Russell. In addition to that, Microsoft is 1.03 times more volatile than iShares Russell Mid Cap. It trades about -0.11 of its total potential returns per unit of risk. iShares Russell Mid Cap is currently generating about -0.08 per unit of volatility. If you would invest  12,742  in iShares Russell Mid Cap on December 29, 2024 and sell it today you would lose (979.00) from holding iShares Russell Mid Cap or give up 7.68% of portfolio value over 90 days.

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

Microsoft  vs.  iShares Russell Mid 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.

iShares Russell Mid

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Russell Mid Cap has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest uncertain performance, the Etf's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the ETF retail investors.

Pair Trading with Microsoft and IShares Russell

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

The idea behind Microsoft and iShares Russell Mid 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.