Correlation Between Microsoft and Stem Cell

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

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

Diversification Opportunities for Microsoft and Stem Cell

0.22

Correlation Coefficient

Microsoft  Stem Cell

Modest diversification

The 3 months correlation between Microsoft and Stem is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Stem Cell Authority in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stem Cell Authority 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 Stem Cell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stem Cell Authority has no effect on the direction of Microsoft i.e., Microsoft and Stem Cell go up and down completely randomly.

Pair Corralation between Microsoft and Stem Cell

Given the investment horizon of 90 days Microsoft is expected to generate 111.75 times less return on investment than Stem Cell. But when comparing it to its historical volatility, Microsoft is 68.88 times less risky than Stem Cell. It trades about 0.07 of its potential returns per unit of risk. Stem Cell Authority is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  0.21  in Stem Cell Authority on September 12, 2024 and sell it today you would earn a total of  1.25  from holding Stem Cell Authority or generate 595.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.6%
Values	Daily Returns

Microsoft  vs.  Stem Cell Authority

Microsoft

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 5 (%) 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.

Stem Cell Authority

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Stem Cell Authority are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile basic indicators, Stem Cell disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Stem Cell

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

The idea behind Microsoft and Stem Cell Authority 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.

Check out your portfolio center.

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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..