Correlation Between Xtrackers and Microsoft
Can any of the company-specific risk be diversified away by investing in both Xtrackers 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 Xtrackers and Microsoft into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Xtrackers II and Microsoft, you can compare the effects of market volatilities on Xtrackers 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 Xtrackers with a short position of Microsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xtrackers and Microsoft.
Diversification Opportunities for Xtrackers and Microsoft
Excellent diversification
The 3 months correlation between Xtrackers and Microsoft is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers II and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and Xtrackers 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 Xtrackers II 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 Xtrackers i.e., Xtrackers and Microsoft go up and down completely randomly.
Pair Corralation between Xtrackers and Microsoft
Assuming the 90 days trading horizon Xtrackers is expected to generate 29.25 times less return on investment than Microsoft. But when comparing it to its historical volatility, Xtrackers II is 3.44 times less risky than Microsoft. It trades about 0.01 of its potential returns per unit of risk. Microsoft is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 26,785 in Microsoft on January 24, 2024 and sell it today you would earn a total of 10,965 from holding Microsoft or generate 40.94% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 99.8% |
| Values | Daily Returns |
Xtrackers II vs. Microsoft
Performance |
| Timeline |
| Xtrackers II |
| Microsoft |
Xtrackers and Microsoft Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Xtrackers and Microsoft
The main advantage of trading using opposite Xtrackers and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Xtrackers 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.| Xtrackers vs. Xtrackers FTSE | Xtrackers vs. Xtrackers SP 500 | Xtrackers vs. Xtrackers MSCI | Xtrackers vs. Xtrackers Stoxx |
| Microsoft vs. Superior Plus Corp | Microsoft vs. Origin Agritech | Microsoft vs. SIVERS SEMICONDUCTORS AB | Microsoft vs. NorAm Drilling AS |
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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