Correlation Between SPDR Barclays and Microsoft

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

By analyzing existing cross correlation between SPDR Barclays Intermediate and Microsoft, you can compare the effects of market volatilities on SPDR Barclays 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 SPDR Barclays with a short position of Microsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR Barclays and Microsoft.

Diversification Opportunities for SPDR Barclays and Microsoft

0.28

Correlation Coefficient

SPDR Barclays  Microsoft

Modest diversification

The 3 months correlation between SPDR and Microsoft is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Barclays Intermediate and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and SPDR Barclays 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 SPDR Barclays Intermediate 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 SPDR Barclays i.e., SPDR Barclays and Microsoft go up and down completely randomly.

Pair Corralation between SPDR Barclays and Microsoft

Given the investment horizon of 90 days SPDR Barclays Intermediate is expected to generate 0.18 times more return on investment than Microsoft. However, SPDR Barclays Intermediate is 5.44 times less risky than Microsoft. It trades about -0.05 of its potential returns per unit of risk. Microsoft is currently generating about -0.06 per unit of risk. If you would invest  3,239  in SPDR Barclays Intermediate on January 31, 2024 and sell it today you would lose (17.00) from holding SPDR Barclays Intermediate or give up 0.52% of portfolio value over 90 days.

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

SPDR Barclays Intermediate  vs.  Microsoft

SPDR Barclays Interm

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR Barclays Intermediate has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong forward indicators, SPDR Barclays is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Microsoft

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Pair Trading with SPDR Barclays and Microsoft

The main advantage of trading using opposite SPDR Barclays and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR Barclays 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.

The idea behind SPDR Barclays Intermediate and Microsoft 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.