Correlation Between Microsoft and Huntington Ingalls

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

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

Diversification Opportunities for Microsoft and Huntington Ingalls

-0.5

Correlation Coefficient

Microsoft  Huntington Ingalls

Very good diversification

The 3 months correlation between Microsoft and Huntington is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Huntington Ingalls Industries, in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Huntington Ingalls 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 Huntington Ingalls. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Huntington Ingalls has no effect on the direction of Microsoft i.e., Microsoft and Huntington Ingalls go up and down completely randomly.

Pair Corralation between Microsoft and Huntington Ingalls

Assuming the 90 days trading horizon Microsoft is expected to under-perform the Huntington Ingalls. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.85 times less risky than Huntington Ingalls. The stock trades about -0.37 of its potential returns per unit of risk. The Huntington Ingalls Industries, is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  1,518  in Huntington Ingalls Industries, on October 15, 2024 and sell it today you would lose (6.00) from holding Huntington Ingalls Industries, or give up 0.4% of portfolio value over 90 days.

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

Microsoft  vs.  Huntington Ingalls Industries,

Microsoft

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Huntington Ingalls

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Huntington Ingalls Industries, has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's forward indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Microsoft and Huntington Ingalls

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

The idea behind Microsoft and Huntington Ingalls Industries, 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.