Correlation Between Microsoft and Invesco SP

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

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

Diversification Opportunities for Microsoft and Invesco SP

0.48

Correlation Coefficient

Microsoft  Invesco SP

Very weak diversification

The 3 months correlation between Microsoft and Invesco is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Invesco SP SmallCap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco SP SmallCap 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 Invesco SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco SP SmallCap has no effect on the direction of Microsoft i.e., Microsoft and Invesco SP go up and down completely randomly.

Pair Corralation between Microsoft and Invesco SP

Given the investment horizon of 90 days Microsoft is expected to generate 0.87 times more return on investment than Invesco SP. However, Microsoft is 1.16 times less risky than Invesco SP. It trades about 0.05 of its potential returns per unit of risk. Invesco SP SmallCap is currently generating about 0.0 per unit of risk. If you would invest  43,048  in Microsoft on September 16, 2024 and sell it today you would earn a total of  1,679  from holding Microsoft or generate 3.9% return on investment over 90 days.

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

Microsoft  vs.  Invesco SP SmallCap

Microsoft

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 4 (%) 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 current stock price uproar, may contribute to short-horizon losses for the private investors.

Invesco SP SmallCap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco SP SmallCap has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental indicators, Invesco SP is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Microsoft and Invesco SP

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

The idea behind Microsoft and Invesco SP SmallCap 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.