Correlation Between Microsoft and IShares VII

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Can any of the company-specific risk be diversified away by investing in both Microsoft and IShares VII 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 VII into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and iShares VII PLC, you can compare the effects of market volatilities on Microsoft and IShares VII 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 VII. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and IShares VII.

Diversification Opportunities for Microsoft and IShares VII

0.18
  Correlation Coefficient

Average diversification

The 3 months correlation between Microsoft and IShares is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and iShares VII PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares VII PLC 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 VII. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares VII PLC has no effect on the direction of Microsoft i.e., Microsoft and IShares VII go up and down completely randomly.

Pair Corralation between Microsoft and IShares VII

Given the investment horizon of 90 days Microsoft is expected to generate 2.77 times more return on investment than IShares VII. However, Microsoft is 2.77 times more volatile than iShares VII PLC. It trades about 0.15 of its potential returns per unit of risk. iShares VII PLC is currently generating about 0.11 per unit of risk. If you would invest  40,955  in Microsoft on September 2, 2024 and sell it today you would earn a total of  1,391  from holding Microsoft or generate 3.4% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy95.45%
ValuesDaily Returns

Microsoft  vs.  iShares VII PLC

 Performance 
       Timeline  
Microsoft 

Risk-Adjusted Performance

3 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.
iShares VII PLC 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days iShares VII PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, IShares VII is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Microsoft and IShares VII Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Microsoft and IShares VII

The main advantage of trading using opposite Microsoft and IShares VII positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, IShares VII 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 VII will offset losses from the drop in IShares VII's long position.
The idea behind Microsoft and iShares VII PLC 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.

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