Correlation Between Microsoft and IShares SP

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

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

Diversification Opportunities for Microsoft and IShares SP

0.22

Correlation Coefficient

Microsoft  IShares SP

Modest diversification

The 3 months correlation between Microsoft and IShares is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and iShares SP Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares SP Mid 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 SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares SP Mid has no effect on the direction of Microsoft i.e., Microsoft and IShares SP go up and down completely randomly.

Pair Corralation between Microsoft and IShares SP

Given the investment horizon of 90 days Microsoft is expected to generate 1.62 times more return on investment than IShares SP. However, Microsoft is 1.62 times more volatile than iShares SP Mid Cap. It trades about -0.07 of its potential returns per unit of risk. iShares SP Mid Cap is currently generating about -0.17 per unit of risk. If you would invest  42,261  in Microsoft on November 29, 2024 and sell it today you would lose (3,008) from holding Microsoft or give up 7.12% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Microsoft  vs.  iShares SP Mid Cap

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 SP Mid

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares SP Mid Cap has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Etf's technical indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the ETF investors.

Pair Trading with Microsoft and IShares SP

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

The idea behind Microsoft and iShares SP Mid 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.

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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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.