Correlation Between Microsoft and IShares Developed
Can any of the company-specific risk be diversified away by investing in both Microsoft and IShares Developed 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 Developed into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and iShares Developed Markets, you can compare the effects of market volatilities on Microsoft and IShares Developed 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 Developed. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and IShares Developed.
Diversification Opportunities for Microsoft and IShares Developed
0.41 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Microsoft and IShares is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and iShares Developed Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Developed Markets 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 Developed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Developed Markets has no effect on the direction of Microsoft i.e., Microsoft and IShares Developed go up and down completely randomly.
Pair Corralation between Microsoft and IShares Developed
Given the investment horizon of 90 days Microsoft is expected to generate 1.61 times more return on investment than IShares Developed. However, Microsoft is 1.61 times more volatile than iShares Developed Markets. It trades about 0.08 of its potential returns per unit of risk. iShares Developed Markets is currently generating about 0.04 per unit of risk. If you would invest 24,843 in Microsoft on September 2, 2024 and sell it today you would earn a total of 17,503 from holding Microsoft or generate 70.45% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 98.02% |
| Values | Daily Returns |
Microsoft vs. iShares Developed Markets
Performance |
| Timeline |
| Microsoft |
| iShares Developed Markets |
Microsoft and IShares Developed Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and IShares Developed
The main advantage of trading using opposite Microsoft and IShares Developed positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, IShares Developed 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 Developed will offset losses from the drop in IShares Developed's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| IShares Developed vs. BlackRock ESG Multi Asset | IShares Developed vs. Pershing Square Holdings | IShares Developed vs. ASML Holding NV | IShares Developed vs. Koninklijke Philips NV |
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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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