Correlation Between Microsoft and Vanguard Lifestrategy

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

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

Diversification Opportunities for Microsoft and Vanguard Lifestrategy

0.46

Correlation Coefficient

Microsoft  Vanguard Lifestrategy

Very weak diversification

The 3 months correlation between Microsoft and Vanguard is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Vanguard Lifestrategy Moderate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Lifestrategy 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 Lifestrategy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Lifestrategy has no effect on the direction of Microsoft i.e., Microsoft and Vanguard Lifestrategy go up and down completely randomly.

Pair Corralation between Microsoft and Vanguard Lifestrategy

Given the investment horizon of 90 days Microsoft is expected to under-perform the Vanguard Lifestrategy. In addition to that, Microsoft is 1.94 times more volatile than Vanguard Lifestrategy Moderate. It trades about -0.08 of its total potential returns per unit of risk. Vanguard Lifestrategy Moderate is currently generating about -0.1 per unit of volatility. If you would invest  3,352  in Vanguard Lifestrategy Moderate on December 1, 2024 and sell it today you would lose (161.00) from holding Vanguard Lifestrategy Moderate or give up 4.8% of portfolio value over 90 days.

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

Microsoft  vs.  Vanguard Lifestrategy Moderate

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 Lifestrategy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Lifestrategy Moderate has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Vanguard Lifestrategy 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 Vanguard Lifestrategy

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

The idea behind Microsoft and Vanguard Lifestrategy Moderate 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.