Correlation Between IncomeShares Microsoft and IncomeShares Amazon

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

By analyzing existing cross correlation between IncomeShares Microsoft Options and IncomeShares Amazon Options, you can compare the effects of market volatilities on IncomeShares Microsoft and IncomeShares Amazon 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 IncomeShares Microsoft with a short position of IncomeShares Amazon. Check out your portfolio center. Please also check ongoing floating volatility patterns of IncomeShares Microsoft and IncomeShares Amazon.

Diversification Opportunities for IncomeShares Microsoft and IncomeShares Amazon

0.97

Correlation Coefficient

IncomeShares Microsoft  IncomeShares Amazon

Almost no diversification

The 3 months correlation between IncomeShares and IncomeShares is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding IncomeShares Microsoft Options and IncomeShares Amazon Options in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IncomeShares Amazon and IncomeShares 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 IncomeShares Microsoft Options are associated (or correlated) with IncomeShares Amazon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IncomeShares Amazon has no effect on the direction of IncomeShares Microsoft i.e., IncomeShares Microsoft and IncomeShares Amazon go up and down completely randomly.

Pair Corralation between IncomeShares Microsoft and IncomeShares Amazon

Assuming the 90 days trading horizon IncomeShares Microsoft is expected to generate 1.5 times less return on investment than IncomeShares Amazon. But when comparing it to its historical volatility, IncomeShares Microsoft Options is 1.06 times less risky than IncomeShares Amazon. It trades about 0.2 of its potential returns per unit of risk. IncomeShares Amazon Options is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  996.00  in IncomeShares Amazon Options on September 27, 2024 and sell it today you would earn a total of  73.00  from holding IncomeShares Amazon Options or generate 7.33% return on investment over 90 days.

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

IncomeShares Microsoft Options  vs.  IncomeShares Amazon Options

IncomeShares Microsoft

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in IncomeShares Microsoft Options are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, IncomeShares Microsoft may actually be approaching a critical reversion point that can send shares even higher in January 2025.

IncomeShares Amazon

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in IncomeShares Amazon Options are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, IncomeShares Amazon exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IncomeShares Microsoft and IncomeShares Amazon

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

The idea behind IncomeShares Microsoft Options and IncomeShares Amazon Options 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 Anywhere module to track or share privately all of your investments from the convenience of any device.