Correlation Between Microsoft and Schwab Balanced

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

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

Diversification Opportunities for Microsoft and Schwab Balanced

0.71

Correlation Coefficient

Microsoft  Schwab Balanced

Poor diversification

The 3 months correlation between Microsoft and Schwab is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Schwab Balanced Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Balanced 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 Balanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Balanced has no effect on the direction of Microsoft i.e., Microsoft and Schwab Balanced go up and down completely randomly.

Pair Corralation between Microsoft and Schwab Balanced

Given the investment horizon of 90 days Microsoft is expected to under-perform the Schwab Balanced. In addition to that, Microsoft is 2.5 times more volatile than Schwab Balanced Fund. It trades about -0.11 of its total potential returns per unit of risk. Schwab Balanced Fund is currently generating about -0.07 per unit of volatility. If you would invest  1,677  in Schwab Balanced Fund on December 29, 2024 and sell it today you would lose (46.00) from holding Schwab Balanced Fund or give up 2.74% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

Microsoft  vs.  Schwab Balanced Fund

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.

Schwab Balanced

Risk-Adjusted Performance

Very Weak

Over the last 90 days Schwab Balanced Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental drivers, Schwab Balanced 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 Balanced

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

The idea behind Microsoft and Schwab Balanced Fund 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 Global Correlations module to find global opportunities by holding instruments from different markets.