Correlation Between Microsoft and Industrial Investment

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

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

Diversification Opportunities for Microsoft and Industrial Investment

-0.05

Correlation Coefficient

Microsoft  Industrial Investment

Good diversification

The 3 months correlation between Microsoft and Industrial is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Industrial Investment Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Industrial Investment 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 Industrial Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Industrial Investment has no effect on the direction of Microsoft i.e., Microsoft and Industrial Investment go up and down completely randomly.

Pair Corralation between Microsoft and Industrial Investment

Given the investment horizon of 90 days Microsoft is expected to generate 10.91 times less return on investment than Industrial Investment. But when comparing it to its historical volatility, Microsoft is 1.53 times less risky than Industrial Investment. It trades about 0.05 of its potential returns per unit of risk. Industrial Investment Trust is currently generating about 0.35 of returns per unit of risk over similar time horizon. If you would invest  26,375  in Industrial Investment Trust on September 2, 2024 and sell it today you would earn a total of  14,305  from holding Industrial Investment Trust or generate 54.24% return on investment over 90 days.

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

Microsoft  vs.  Industrial Investment Trust

Microsoft

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Industrial Investment

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Industrial Investment Trust are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Industrial Investment unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Industrial Investment

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

The idea behind Microsoft and Industrial Investment Trust 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.