Correlation Between Microsoft and IBASE Technology

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

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

Diversification Opportunities for Microsoft and IBASE Technology

-0.37

Correlation Coefficient

Microsoft  IBASE Technology

Very good diversification

The 3 months correlation between Microsoft and IBASE is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and IBASE Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IBASE Technology 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 IBASE Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IBASE Technology has no effect on the direction of Microsoft i.e., Microsoft and IBASE Technology go up and down completely randomly.

Pair Corralation between Microsoft and IBASE Technology

Given the investment horizon of 90 days Microsoft is expected to generate 0.8 times more return on investment than IBASE Technology. However, Microsoft is 1.25 times less risky than IBASE Technology. It trades about -0.03 of its potential returns per unit of risk. IBASE Technology is currently generating about -0.05 per unit of risk. If you would invest  45,754  in Microsoft on September 30, 2024 and sell it today you would lose (2,701) from holding Microsoft or give up 5.9% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Microsoft  vs.  IBASE Technology

Microsoft

Risk-Adjusted Performance

0 of 100

Very Weak

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 current stock price uproar, may contribute to short-horizon losses for the private investors.

IBASE Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IBASE Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, IBASE Technology is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Microsoft and IBASE Technology

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

The idea behind Microsoft and IBASE Technology 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 Stocks Directory module to find actively traded stocks across global markets.