Correlation Between United States and Microsoft

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

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

Diversification Opportunities for United States and Microsoft

0.18

Correlation Coefficient

United States  Microsoft

Average diversification

The 3 months correlation between United and Microsoft is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding United States Steel and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and United States 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 United States Steel 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 United States i.e., United States and Microsoft go up and down completely randomly.

Pair Corralation between United States and Microsoft

Given the investment horizon of 90 days United States Steel is expected to under-perform the Microsoft. In addition to that, United States is 2.08 times more volatile than Microsoft. It trades about -0.09 of its total potential returns per unit of risk. Microsoft is currently generating about -0.12 per unit of volatility. If you would invest  1,797,500  in Microsoft on September 13, 2024 and sell it today you would lose (197,500) from holding Microsoft or give up 10.99% of portfolio value over 90 days.

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

United States Steel  vs.  Microsoft

United States Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days United States Steel has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's fundamental drivers remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

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. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with United States and Microsoft

The main advantage of trading using opposite United States and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United States 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 United States Steel 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 Global Correlations module to find global opportunities by holding instruments from different markets.