Correlation Between International Business and Microsoft Corp

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

Diversification Opportunities for International Business and Microsoft Corp

-0.06
  Correlation Coefficient

Good diversification

The 3 months correlation between International and Microsoft is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding International Business Machine and Microsoft Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft Corp and International Business 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 International Business Machines 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 International Business i.e., International Business and Microsoft Corp go up and down completely randomly.

Pair Corralation between International Business and Microsoft Corp

Considering the 90-day investment horizon International Business is expected to generate 1.23 times less return on investment than Microsoft Corp. But when comparing it to its historical volatility, International Business Machines is 1.14 times less risky than Microsoft Corp. It trades about 0.04 of its potential returns per unit of risk. Microsoft Corp is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  21,778  in Microsoft Corp on May 18, 2022 and sell it today you would earn a total of  7,498  from holding Microsoft Corp or generate 34.43% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

International Business Machine  vs.  Microsoft Corp

 Performance (%) 
       Timeline  
International Business 
International Performance
3 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in International Business Machines are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively steady fundamental drivers, International Business is not utilizing all of its potentials. The current stock price chaos, may contribute to medium-term losses for the stakeholders.

International Price Channel

Microsoft Corp 
Microsoft Performance
9 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft Corp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively sluggish technical and fundamental indicators, Microsoft Corp unveiled solid returns over the last few months and may actually be approaching a breakup point.

Microsoft Price Channel

International Business and Microsoft Corp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with International Business and Microsoft Corp

The main advantage of trading using opposite International Business and Microsoft Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Business 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.
The idea behind International Business Machines 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.
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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.

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