Correlation Between Microsoft and IShares Equity

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

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

Diversification Opportunities for Microsoft and IShares Equity

0.67

Correlation Coefficient

Microsoft  IShares Equity

Poor diversification

The 3 months correlation between Microsoft and IShares is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and iShares Equity Enhanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Equity Enhanced 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 Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Equity Enhanced has no effect on the direction of Microsoft i.e., Microsoft and IShares Equity go up and down completely randomly.

Pair Corralation between Microsoft and IShares Equity

Given the investment horizon of 90 days Microsoft is expected to under-perform the IShares Equity. In addition to that, Microsoft is 1.56 times more volatile than iShares Equity Enhanced. It trades about -0.17 of its total potential returns per unit of risk. iShares Equity Enhanced is currently generating about -0.05 per unit of volatility. If you would invest  536.00  in iShares Equity Enhanced on October 11, 2024 and sell it today you would lose (4.00) from holding iShares Equity Enhanced or give up 0.75% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	85.0%
Values	Daily Returns

Microsoft  vs.  iShares Equity Enhanced

Microsoft

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 2 (%) 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.

iShares Equity Enhanced

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Equity Enhanced are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of rather unsteady technical and fundamental indicators, IShares Equity may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Microsoft and IShares Equity

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

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