Correlation Between Microsoft and Invesco Small

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

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

Diversification Opportunities for Microsoft and Invesco Small

0.11

Correlation Coefficient

Microsoft  Invesco Small

Average diversification

The 3 months correlation between Microsoft and Invesco is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Invesco Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Small Cap 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 Invesco Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Small Cap has no effect on the direction of Microsoft i.e., Microsoft and Invesco Small go up and down completely randomly.

Pair Corralation between Microsoft and Invesco Small

Given the investment horizon of 90 days Microsoft is expected to under-perform the Invesco Small. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.21 times less risky than Invesco Small. The stock trades about -0.03 of its potential returns per unit of risk. The Invesco Small Cap is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  2,497  in Invesco Small Cap on September 30, 2024 and sell it today you would earn a total of  92.00  from holding Invesco Small Cap or generate 3.68% return on investment over 90 days.

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

Microsoft  vs.  Invesco Small Cap

Microsoft

Risk-Adjusted Performance

0 of 100

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 comparatively stable technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Invesco Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Invesco Small 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 Invesco Small

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

The idea behind Microsoft and Invesco Small Cap 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.