Correlation Between Microsoft and International Equity
Can any of the company-specific risk be diversified away by investing in both Microsoft and International Equity 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 Equity into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and International Equity Portfolio, you can compare the effects of market volatilities on Microsoft and International Equity 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 Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and International Equity.
Diversification Opportunities for Microsoft and International Equity
0.27 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Microsoft and International is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and International Equity Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Equity 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 Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Equity has no effect on the direction of Microsoft i.e., Microsoft and International Equity go up and down completely randomly.
Pair Corralation between Microsoft and International Equity
Given the investment horizon of 90 days Microsoft is expected to generate 1.49 times more return on investment than International Equity. However, Microsoft is 1.49 times more volatile than International Equity Portfolio. It trades about 0.19 of its potential returns per unit of risk. International Equity Portfolio is currently generating about -0.06 per unit of risk. If you would invest 40,554 in Microsoft on September 1, 2024 and sell it today you would earn a total of 1,792 from holding Microsoft or generate 4.42% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
Microsoft vs. International Equity Portfolio
Performance |
| Timeline |
| Microsoft |
| International Equity |
Microsoft and International Equity Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and International Equity
The main advantage of trading using opposite Microsoft and International Equity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, International Equity 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 Equity will offset losses from the drop in International Equity'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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.
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