Correlation Between Ark Innovation and Microsoft Corp

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

Diversification Opportunities for Ark Innovation and Microsoft Corp

0.82
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Ark Innovation and Microsoft is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Ark Innovation ETF and Microsoft Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft Corp and Ark Innovation 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 Ark Innovation ETF are associated (or correlated) with Microsoft Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft Corp has no effect on the direction of Ark Innovation i.e., Ark Innovation and Microsoft Corp go up and down completely randomly.

Pair Corralation between Ark Innovation and Microsoft Corp

Given the investment horizon of 90 days Ark Innovation ETF is expected to generate 1.96 times more return on investment than Microsoft Corp. However, Ark Innovation is 1.96 times more volatile than Microsoft Corp. It trades about -0.13 of its potential returns per unit of risk. Microsoft Corp is currently generating about -0.27 per unit of risk. If you would invest  4,191  in Ark Innovation ETF on July 1, 2022 and sell it today you would lose (421.00)  from holding Ark Innovation ETF or give up 10.05% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Ark Innovation ETF  vs.  Microsoft Corp

 Performance (%) 
       Timeline  
Ark Innovation ETF 
Ark Innovation Performance
0 of 100
Over the last 90 days Ark Innovation ETF has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong forward-looking signals, Ark Innovation is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Ark Innovation Price Channel

Microsoft Corp 
Microsoft Performance
0 of 100
Over the last 90 days Microsoft Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest sluggish performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Microsoft Price Channel

Ark Innovation and Microsoft Corp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Ark Innovation and Microsoft Corp

The main advantage of trading using opposite Ark Innovation and Microsoft Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ark Innovation position performs unexpectedly, Microsoft Corp 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 Microsoft Corp will offset losses from the drop in Microsoft Corp's long position.
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The idea behind Ark Innovation ETF and Microsoft Corp 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.

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