Correlation Between Microsoft and IShares SPTSX

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

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

Diversification Opportunities for Microsoft and IShares SPTSX

-0.8

Correlation Coefficient

Microsoft  IShares SPTSX

Pay attention - limited upside

The 3 months correlation between Microsoft and IShares is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and iShares SPTSX Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares SPTSX Global 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 SPTSX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares SPTSX Global has no effect on the direction of Microsoft i.e., Microsoft and IShares SPTSX go up and down completely randomly.

Pair Corralation between Microsoft and IShares SPTSX

Given the investment horizon of 90 days Microsoft is expected to under-perform the IShares SPTSX. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.05 times less risky than IShares SPTSX. The stock trades about -0.11 of its potential returns per unit of risk. The iShares SPTSX Global is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  2,091  in iShares SPTSX Global on December 30, 2024 and sell it today you would earn a total of  746.00  from holding iShares SPTSX Global or generate 35.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	96.88%
Values	Daily Returns

Microsoft  vs.  iShares SPTSX Global

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.

iShares SPTSX Global

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SPTSX Global are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, IShares SPTSX displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and IShares SPTSX

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

The idea behind Microsoft and iShares SPTSX Global 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 Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..