Correlation Between Microsoft and Vanguard Explorer

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

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

Diversification Opportunities for Microsoft and Vanguard Explorer

0.81

Correlation Coefficient

Microsoft  Vanguard Explorer

Very poor diversification

The 3 months correlation between Microsoft and Vanguard is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Vanguard Explorer Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Explorer Value 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 Vanguard Explorer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Explorer Value has no effect on the direction of Microsoft i.e., Microsoft and Vanguard Explorer go up and down completely randomly.

Pair Corralation between Microsoft and Vanguard Explorer

Given the investment horizon of 90 days Microsoft is expected to under-perform the Vanguard Explorer. In addition to that, Microsoft is 1.44 times more volatile than Vanguard Explorer Value. It trades about -0.11 of its total potential returns per unit of risk. Vanguard Explorer Value is currently generating about -0.11 per unit of volatility. If you would invest  4,269  in Vanguard Explorer Value on December 30, 2024 and sell it today you would lose (326.00) from holding Vanguard Explorer Value or give up 7.64% of portfolio value over 90 days.

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

Microsoft  vs.  Vanguard Explorer Value

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.

Vanguard Explorer Value

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Explorer Value has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Microsoft and Vanguard Explorer

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

The idea behind Microsoft and Vanguard Explorer Value 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.