Correlation Between Microsoft and IShares US

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

Diversification Opportunities for Microsoft and IShares US

0.74
  Correlation Coefficient

Poor diversification

The 3 months correlation between Microsoft and IShares is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and IShares US ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IShares US ETF 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 US. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IShares US ETF has no effect on the direction of Microsoft i.e., Microsoft and IShares US go up and down completely randomly.

Pair Corralation between Microsoft and IShares US

Given the investment horizon of 90 days Microsoft is expected to generate 3.91 times more return on investment than IShares US. However, Microsoft is 3.91 times more volatile than IShares US ETF. It trades about 0.16 of its potential returns per unit of risk. IShares US ETF is currently generating about 0.27 per unit of risk. If you would invest  22,823  in Microsoft on September 9, 2022 and sell it today you would earn a total of  1,917  from holding Microsoft or generate 8.4% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Microsoft  vs.  IShares US ETF

 Performance (%) 
       Timeline  
Microsoft 
Microsoft Performance
0 of 100
Over the last 90 days Microsoft has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Microsoft Price Channel

IShares US ETF 
IShares Performance
0 of 100
Over the last 90 days IShares US ETF has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward indicators, IShares US is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

IShares Price Channel

Microsoft and IShares US Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Microsoft and IShares US

The main advantage of trading using opposite Microsoft and IShares US positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, IShares US 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 US will offset losses from the drop in IShares US's long position.
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The idea behind Microsoft and IShares US ETF 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.
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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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.

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