Correlation Between Microsoft and Patterson Companies

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

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

Diversification Opportunities for Microsoft and Patterson Companies

0.7

Correlation Coefficient

Microsoft  Patterson Companies

Poor diversification

The 3 months correlation between Microsoft and Patterson is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Patterson Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Patterson Companies 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 Patterson Companies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Patterson Companies has no effect on the direction of Microsoft i.e., Microsoft and Patterson Companies go up and down completely randomly.

Pair Corralation between Microsoft and Patterson Companies

Assuming the 90 days trading horizon Microsoft is expected to under-perform the Patterson Companies. In addition to that, Microsoft is 1.82 times more volatile than Patterson Companies. It trades about -0.15 of its total potential returns per unit of risk. Patterson Companies is currently generating about -0.05 per unit of volatility. If you would invest  2,960  in Patterson Companies on December 24, 2024 and sell it today you would lose (100.00) from holding Patterson Companies or give up 3.38% of portfolio value over 90 days.

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

Microsoft  vs.  Patterson Companies

Microsoft

Risk-Adjusted Performance

Very Weak

Over the last 90 days Microsoft has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Patterson Companies

Risk-Adjusted Performance

Very Weak

Over the last 90 days Patterson Companies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Patterson Companies is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Microsoft and Patterson Companies

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

The idea behind Microsoft and Patterson Companies 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.