Correlation Between Microsoft and IShares Morningstar

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

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

Diversification Opportunities for Microsoft and IShares Morningstar

0.23

Correlation Coefficient

Microsoft  IShares Morningstar

Modest diversification

The 3 months correlation between Microsoft and IShares is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and iShares Morningstar Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Morningstar 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 IShares Morningstar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Morningstar has no effect on the direction of Microsoft i.e., Microsoft and IShares Morningstar go up and down completely randomly.

Pair Corralation between Microsoft and IShares Morningstar

Given the investment horizon of 90 days Microsoft is expected to generate 1.68 times less return on investment than IShares Morningstar. In addition to that, Microsoft is 1.54 times more volatile than iShares Morningstar Equity. It trades about 0.15 of its total potential returns per unit of risk. iShares Morningstar Equity is currently generating about 0.38 per unit of volatility. If you would invest  7,897  in iShares Morningstar Equity on September 2, 2024 and sell it today you would earn a total of  468.00  from holding iShares Morningstar Equity or generate 5.93% return on investment over 90 days.

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

Microsoft  vs.  iShares Morningstar Equity

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.

iShares Morningstar

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Morningstar Equity are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile fundamental indicators, IShares Morningstar may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Microsoft and IShares Morningstar

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

The idea behind Microsoft and iShares Morningstar Equity 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 the Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.