Correlation Between Microsoft and Isracard
Can any of the company-specific risk be diversified away by investing in both Microsoft and Isracard 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 Isracard into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Isracard, you can compare the effects of market volatilities on Microsoft and Isracard 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 Isracard. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Isracard.
Diversification Opportunities for Microsoft and Isracard
Very weak diversification
The 3 months correlation between Microsoft and Isracard is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Isracard in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Isracard 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 Isracard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Isracard has no effect on the direction of Microsoft i.e., Microsoft and Isracard go up and down completely randomly.
Pair Corralation between Microsoft and Isracard
Given the investment horizon of 90 days Microsoft is expected to under-perform the Isracard. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 2.62 times less risky than Isracard. The stock trades about -0.03 of its potential returns per unit of risk. The Isracard is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 135,069 in Isracard on January 18, 2024 and sell it today you would earn a total of 2,431 from holding Isracard or generate 1.8% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 86.36% |
| Values | Daily Returns |
Microsoft vs. Isracard
Performance |
| Timeline |
| Microsoft |
| Isracard |
Microsoft and Isracard Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Isracard
The main advantage of trading using opposite Microsoft and Isracard positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Isracard 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 Isracard will offset losses from the drop in Isracard's long position.| Microsoft vs. Cloudflare | Microsoft vs. Okta Inc | Microsoft vs. Adobe Systems Incorporated | Microsoft vs. Nutanix |
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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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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