Correlation Between Microsoft and BC IRON

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

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

Diversification Opportunities for Microsoft and BC IRON

0.88

Correlation Coefficient

Microsoft  BC IRON

Very poor diversification

The 3 months correlation between Microsoft and BC3 is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and BC IRON in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BC IRON 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 BC IRON. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BC IRON has no effect on the direction of Microsoft i.e., Microsoft and BC IRON go up and down completely randomly.

Pair Corralation between Microsoft and BC IRON

Assuming the 90 days trading horizon Microsoft is expected to generate 0.65 times more return on investment than BC IRON. However, Microsoft is 1.54 times less risky than BC IRON. It trades about 0.3 of its potential returns per unit of risk. BC IRON is currently generating about 0.19 per unit of risk. If you would invest  31,682  in Microsoft on April 20, 2025 and sell it today you would earn a total of  12,108  from holding Microsoft or generate 38.22% return on investment over 90 days.

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

Microsoft  vs.  BC IRON

Microsoft

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain technical and fundamental indicators, Microsoft displayed solid returns over the last few months and may actually be approaching a breakup point.

BC IRON

Risk-Adjusted Performance

Good

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

Pair Trading with Microsoft and BC IRON

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

The idea behind Microsoft and BC IRON 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.