Correlation Between Microsoft and International Business
Can any of the company-specific risk be diversified away by investing in both Microsoft and International Business 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 International Business into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and International Business Machines, you can compare the effects of market volatilities on Microsoft and International Business 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 International Business. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and International Business.
Diversification Opportunities for Microsoft and International Business
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Microsoft and International is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and International Business Machine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Business 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 International Business. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Business has no effect on the direction of Microsoft i.e., Microsoft and International Business go up and down completely randomly.
Pair Corralation between Microsoft and International Business
Assuming the 90 days trading horizon Microsoft is expected to generate 1.13 times less return on investment than International Business. But when comparing it to its historical volatility, Microsoft is 1.47 times less risky than International Business. It trades about 0.42 of its potential returns per unit of risk. International Business Machines is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest 19,610 in International Business Machines on September 19, 2024 and sell it today you would earn a total of 2,180 from holding International Business Machines or generate 11.12% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. International Business Machine
Performance |
| Timeline |
| Microsoft |
| International Business |
Microsoft and International Business Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and International Business
The main advantage of trading using opposite Microsoft and International Business positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, International Business 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 International Business will offset losses from the drop in International Business' long position.| Microsoft vs. Bumrungrad Hospital Public | Microsoft vs. SHIP HEALTHCARE HLDGINC | Microsoft vs. National Health Investors | Microsoft vs. Sabra Health Care |
| International Business vs. Ramsay Health Care | International Business vs. Carnegie Clean Energy | International Business vs. NAKED WINES PLC | International Business vs. Sabra Health Care |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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