Correlation Between Microsoft and Virtus Emerging

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

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

Diversification Opportunities for Microsoft and Virtus Emerging

-0.32

Correlation Coefficient

Microsoft  Virtus Emerging

Very good diversification

The 3 months correlation between Microsoft and Virtus is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Virtus Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Virtus Emerging Markets 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 Virtus Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Virtus Emerging Markets has no effect on the direction of Microsoft i.e., Microsoft and Virtus Emerging go up and down completely randomly.

Pair Corralation between Microsoft and Virtus Emerging

Given the investment horizon of 90 days Microsoft is expected to generate 1.13 times more return on investment than Virtus Emerging. However, Microsoft is 1.13 times more volatile than Virtus Emerging Markets. It trades about 0.0 of its potential returns per unit of risk. Virtus Emerging Markets is currently generating about -0.22 per unit of risk. If you would invest  43,098  in Microsoft on October 1, 2024 and sell it today you would lose (45.00) from holding Microsoft or give up 0.1% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Microsoft  vs.  Virtus Emerging Markets

Microsoft

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 2 (%) 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.

Virtus Emerging Markets

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Virtus Emerging Markets has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Microsoft and Virtus Emerging

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

The idea behind Microsoft and Virtus Emerging Markets 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.