Correlation Between Microsoft and ING Groep

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

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

Diversification Opportunities for Microsoft and ING Groep

0.45

Correlation Coefficient

Microsoft  ING Groep

Very weak diversification

The 3 months correlation between Microsoft and ING is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and ING Groep NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ING Groep NV 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 ING Groep. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ING Groep NV has no effect on the direction of Microsoft i.e., Microsoft and ING Groep go up and down completely randomly.

Pair Corralation between Microsoft and ING Groep

Given the investment horizon of 90 days Microsoft is expected to under-perform the ING Groep. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.15 times less risky than ING Groep. The stock trades about -0.17 of its potential returns per unit of risk. The ING Groep NV is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,459  in ING Groep NV on January 30, 2024 and sell it today you would earn a total of  32.00  from holding ING Groep NV or generate 2.19% return on investment over 90 days.

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

Microsoft  vs.  ING Groep NV

Microsoft

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Microsoft has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

ING Groep NV

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ING Groep NV are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, ING Groep unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and ING Groep

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

The idea behind Microsoft and ING Groep NV 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.