Correlation Between Microsoft and INTUITIVE SURGICAL

Can any of the company-specific risk be diversified away by investing in both Microsoft and INTUITIVE SURGICAL 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 INTUITIVE SURGICAL into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Microsoft and INTUITIVE SURGICAL, you can compare the effects of market volatilities on Microsoft and INTUITIVE SURGICAL 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 INTUITIVE SURGICAL. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and INTUITIVE SURGICAL.

Diversification Opportunities for Microsoft and INTUITIVE SURGICAL

0.77

Correlation Coefficient

Microsoft  INTUITIVE SURGICAL

Poor diversification

The 3 months correlation between Microsoft and INTUITIVE is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and INTUITIVE SURGICAL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on INTUITIVE SURGICAL 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 INTUITIVE SURGICAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of INTUITIVE SURGICAL has no effect on the direction of Microsoft i.e., Microsoft and INTUITIVE SURGICAL go up and down completely randomly.

Pair Corralation between Microsoft and INTUITIVE SURGICAL

Assuming the 90 days trading horizon Microsoft is expected to generate 0.8 times more return on investment than INTUITIVE SURGICAL. However, Microsoft is 1.25 times less risky than INTUITIVE SURGICAL. It trades about 0.27 of its potential returns per unit of risk. INTUITIVE SURGICAL is currently generating about -0.06 per unit of risk. If you would invest  39,475  in Microsoft on September 22, 2024 and sell it today you would earn a total of  2,675  from holding Microsoft or generate 6.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Microsoft  vs.  INTUITIVE SURGICAL

Microsoft

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in January 2025.

INTUITIVE SURGICAL

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in INTUITIVE SURGICAL are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, INTUITIVE SURGICAL exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and INTUITIVE SURGICAL

The main advantage of trading using opposite Microsoft and INTUITIVE SURGICAL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, INTUITIVE SURGICAL 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 INTUITIVE SURGICAL will offset losses from the drop in INTUITIVE SURGICAL's long position.

The idea behind Microsoft and INTUITIVE SURGICAL 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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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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.