Correlation Between Microsoft and Schwab Large

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

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

Diversification Opportunities for Microsoft and Schwab Large

0.69

Correlation Coefficient

Microsoft  Schwab Large

Poor diversification

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

Pair Corralation between Microsoft and Schwab Large

Given the investment horizon of 90 days Microsoft is expected to generate 1.71 times more return on investment than Schwab Large. However, Microsoft is 1.71 times more volatile than Schwab Large Cap ETF. It trades about 0.09 of its potential returns per unit of risk. Schwab Large Cap ETF is currently generating about 0.11 per unit of risk. If you would invest  24,381  in Microsoft on October 22, 2024 and sell it today you would earn a total of  18,522  from holding Microsoft or generate 75.97% return on investment over 90 days.

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

Microsoft  vs.  Schwab Large Cap ETF

Microsoft

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 1 (%) 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 latest stock price uproar, may contribute to short-horizon losses for the private investors.

Schwab Large Cap

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab Large Cap ETF are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical indicators, Schwab Large 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 Schwab Large

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

The idea behind Microsoft and Schwab Large Cap ETF 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.