Correlation Between Microsoft and Inter Industries

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

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

Diversification Opportunities for Microsoft and Inter Industries

-0.12

Correlation Coefficient

Microsoft  Inter Industries

Good diversification

The 3 months correlation between Microsoft and Inter is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Inter Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inter Industries 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 Inter Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inter Industries has no effect on the direction of Microsoft i.e., Microsoft and Inter Industries go up and down completely randomly.

Pair Corralation between Microsoft and Inter Industries

Given the investment horizon of 90 days Microsoft is expected to generate 12.52 times less return on investment than Inter Industries. But when comparing it to its historical volatility, Microsoft is 2.0 times less risky than Inter Industries. It trades about 0.02 of its potential returns per unit of risk. Inter Industries is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  22,270  in Inter Industries on September 25, 2024 and sell it today you would earn a total of  2,740  from holding Inter Industries or generate 12.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	71.43%
Values	Daily Returns

Microsoft  vs.  Inter Industries

Microsoft

Risk-Adjusted Performance

1 of 100

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 current stock price uproar, may contribute to short-horizon losses for the private investors.

Inter Industries

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Inter Industries are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Inter Industries sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Inter Industries

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

The idea behind Microsoft and Inter Industries 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.