Correlation Between IShares MSCI and Microsoft
Can any of the company-specific risk be diversified away by investing in both IShares MSCI and Microsoft 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 IShares MSCI and Microsoft into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between iShares MSCI EAFE and Microsoft, you can compare the effects of market volatilities on IShares MSCI and Microsoft 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 IShares MSCI with a short position of Microsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and Microsoft.
Diversification Opportunities for IShares MSCI and Microsoft
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between IShares and Microsoft is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI EAFE and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and IShares MSCI 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 iShares MSCI EAFE are associated (or correlated) with Microsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft has no effect on the direction of IShares MSCI i.e., IShares MSCI and Microsoft go up and down completely randomly.
Pair Corralation between IShares MSCI and Microsoft
Considering the 90-day investment horizon IShares MSCI is expected to generate 11.77 times less return on investment than Microsoft. But when comparing it to its historical volatility, iShares MSCI EAFE is 1.67 times less risky than Microsoft. It trades about 0.02 of its potential returns per unit of risk. Microsoft is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 24,013 in Microsoft on January 24, 2024 and sell it today you would earn a total of 16,083 from holding Microsoft or generate 66.98% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
iShares MSCI EAFE vs. Microsoft
Performance |
| Timeline |
| iShares MSCI EAFE |
| Microsoft |
IShares MSCI and Microsoft Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IShares MSCI and Microsoft
The main advantage of trading using opposite IShares MSCI and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares MSCI position performs unexpectedly, Microsoft 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 Microsoft will offset losses from the drop in Microsoft's long position.| IShares MSCI vs. Dimensional ETF Trust | IShares MSCI vs. Vanguard Small Cap Index | IShares MSCI vs. First Trust Multi Manager | IShares MSCI vs. Vanguard SP Small Cap |
| Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated | Microsoft vs. Crowdstrike Holdings | Microsoft vs. Cloudflare |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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