Correlation Between Microsoft and Innovator
Can any of the company-specific risk be diversified away by investing in both Microsoft and Innovator 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 Innovator into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Innovator SP 500, you can compare the effects of market volatilities on Microsoft and Innovator 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 Innovator. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Innovator.
Diversification Opportunities for Microsoft and Innovator
Modest diversification
The 3 months correlation between Microsoft and Innovator is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Innovator SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innovator SP 500 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 Innovator. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innovator SP 500 has no effect on the direction of Microsoft i.e., Microsoft and Innovator go up and down completely randomly.
Pair Corralation between Microsoft and Innovator
Given the investment horizon of 90 days Microsoft is expected to generate 1.1 times less return on investment than Innovator. In addition to that, Microsoft is 3.43 times more volatile than Innovator SP 500. It trades about 0.04 of its total potential returns per unit of risk. Innovator SP 500 is currently generating about 0.15 per unit of volatility. If you would invest 3,501 in Innovator SP 500 on August 26, 2024 and sell it today you would earn a total of 498.00 from holding Innovator SP 500 or generate 14.22% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Innovator SP 500
Performance |
| Timeline |
| Microsoft |
| Innovator SP 500 |
Microsoft and Innovator Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Innovator
The main advantage of trading using opposite Microsoft and Innovator positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Innovator 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 Innovator will offset losses from the drop in Innovator's long position.| Microsoft vs. GigaCloud Technology Class | Microsoft vs. Arqit Quantum | Microsoft vs. Cemtrex | Microsoft vs. Rapid7 Inc |
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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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