Correlation Between Microsoft and Investment Trust

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

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

Diversification Opportunities for Microsoft and Investment Trust

0.04

Correlation Coefficient

Microsoft  Investment Trust

Significant diversification

The 3 months correlation between Microsoft and Investment is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and The Investment Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Investment Trust 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 Investment Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Investment Trust has no effect on the direction of Microsoft i.e., Microsoft and Investment Trust go up and down completely randomly.

Pair Corralation between Microsoft and Investment Trust

Given the investment horizon of 90 days Microsoft is expected to generate 2.74 times less return on investment than Investment Trust. But when comparing it to its historical volatility, Microsoft is 2.09 times less risky than Investment Trust. It trades about 0.05 of its potential returns per unit of risk. The Investment Trust is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  18,501  in The Investment Trust on September 2, 2024 and sell it today you would earn a total of  1,733  from holding The Investment Trust or generate 9.37% return on investment over 90 days.

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

Microsoft  vs.  The Investment Trust

Microsoft

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 3 (%) 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.

Investment Trust

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in The Investment Trust are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Investment Trust may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Microsoft and Investment Trust

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

The idea behind Microsoft and The Investment Trust 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.