Correlation Between Microsoft and IShares Transportation
Can any of the company-specific risk be diversified away by investing in both Microsoft and IShares Transportation 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 Transportation into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and iShares Transportation Average, you can compare the effects of market volatilities on Microsoft and IShares Transportation 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 Transportation. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and IShares Transportation.
Diversification Opportunities for Microsoft and IShares Transportation
-0.3 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Microsoft and IShares is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and iShares Transportation Average in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Transportation 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 Transportation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Transportation has no effect on the direction of Microsoft i.e., Microsoft and IShares Transportation go up and down completely randomly.
Pair Corralation between Microsoft and IShares Transportation
Given the investment horizon of 90 days Microsoft is expected to under-perform the IShares Transportation. In addition to that, Microsoft is 1.43 times more volatile than iShares Transportation Average. It trades about -0.07 of its total potential returns per unit of risk. iShares Transportation Average is currently generating about 0.41 per unit of volatility. If you would invest 6,789 in iShares Transportation Average on October 24, 2024 and sell it today you would earn a total of 397.00 from holding iShares Transportation Average or generate 5.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. iShares Transportation Average
Performance |
| Timeline |
| Microsoft |
| iShares Transportation |
Microsoft and IShares Transportation Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and IShares Transportation
The main advantage of trading using opposite Microsoft and IShares Transportation positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, IShares Transportation 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 Transportation will offset losses from the drop in IShares Transportation's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. BLOCK INC | Microsoft vs. Adobe Systems Incorporated |
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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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