Correlation Between Microsoft and Vanguard Value

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

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

Diversification Opportunities for Microsoft and Vanguard Value

0.78

Correlation Coefficient

Microsoft  Vanguard Value

Poor diversification

The 3 months correlation between Microsoft and Vanguard is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Vanguard Value Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Value Index 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 Vanguard Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Value Index has no effect on the direction of Microsoft i.e., Microsoft and Vanguard Value go up and down completely randomly.

Pair Corralation between Microsoft and Vanguard Value

Given the investment horizon of 90 days Microsoft is expected to under-perform the Vanguard Value. In addition to that, Microsoft is 1.4 times more volatile than Vanguard Value Index. It trades about -0.27 of its total potential returns per unit of risk. Vanguard Value Index is currently generating about -0.13 per unit of volatility. If you would invest  16,017  in Vanguard Value Index on January 24, 2024 and sell it today you would lose (310.00) from holding Vanguard Value Index or give up 1.94% of portfolio value over 90 days.

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

Microsoft  vs.  Vanguard Value Index

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.

Vanguard Value Index

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Value Index are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Vanguard Value is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Microsoft and Vanguard Value

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

The idea behind Microsoft and Vanguard Value Index 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.