Correlation Between Microsoft and Invesco Markets

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

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

Diversification Opportunities for Microsoft and Invesco Markets

0.7

Correlation Coefficient

Microsoft  Invesco Markets

Poor diversification

The 3 months correlation between Microsoft and Invesco is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Invesco Markets II in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Markets II 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 Invesco Markets. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Markets II has no effect on the direction of Microsoft i.e., Microsoft and Invesco Markets go up and down completely randomly.

Pair Corralation between Microsoft and Invesco Markets

Given the investment horizon of 90 days Microsoft is expected to generate 8.06 times less return on investment than Invesco Markets. In addition to that, Microsoft is 1.42 times more volatile than Invesco Markets II. It trades about 0.01 of its total potential returns per unit of risk. Invesco Markets II is currently generating about 0.12 per unit of volatility. If you would invest  5,742  in Invesco Markets II on September 28, 2024 and sell it today you would earn a total of  387.00  from holding Invesco Markets II or generate 6.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Microsoft  vs.  Invesco Markets II

Microsoft

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Microsoft has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Invesco Markets II

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco Markets II are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Invesco Markets may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Microsoft and Invesco Markets

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

The idea behind Microsoft and Invesco Markets II 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.