Correlation Between Microsoft and Inverse Mid

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

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

Diversification Opportunities for Microsoft and Inverse Mid

-0.65

Correlation Coefficient

Microsoft  Inverse Mid

Excellent diversification

The 3 months correlation between Microsoft and Inverse is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Inverse Mid Cap Strategy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inverse Mid Cap 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 Inverse Mid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inverse Mid Cap has no effect on the direction of Microsoft i.e., Microsoft and Inverse Mid go up and down completely randomly.

Pair Corralation between Microsoft and Inverse Mid

Given the investment horizon of 90 days Microsoft is expected to under-perform the Inverse Mid. In addition to that, Microsoft is 1.58 times more volatile than Inverse Mid Cap Strategy. It trades about -0.14 of its total potential returns per unit of risk. Inverse Mid Cap Strategy is currently generating about 0.13 per unit of volatility. If you would invest  4,888  in Inverse Mid Cap Strategy on February 5, 2024 and sell it today you would earn a total of  122.00  from holding Inverse Mid Cap Strategy or generate 2.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Microsoft  vs.  Inverse Mid Cap Strategy

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.

Inverse Mid Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Inverse Mid Cap Strategy has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Inverse Mid is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Microsoft and Inverse Mid

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

The idea behind Microsoft and Inverse Mid Cap Strategy 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.