Correlation Between Microsoft and STMICROELECTRONICS

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

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

Diversification Opportunities for Microsoft and STMICROELECTRONICS

-0.36

Correlation Coefficient

Microsoft  STMICROELECTRONICS

Very good diversification

The 3 months correlation between Microsoft and STMICROELECTRONICS is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and STMICROELECTRONICS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMICROELECTRONICS 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 STMICROELECTRONICS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STMICROELECTRONICS has no effect on the direction of Microsoft i.e., Microsoft and STMICROELECTRONICS go up and down completely randomly.

Pair Corralation between Microsoft and STMICROELECTRONICS

Assuming the 90 days trading horizon Microsoft is expected to generate 0.54 times more return on investment than STMICROELECTRONICS. However, Microsoft is 1.85 times less risky than STMICROELECTRONICS. It trades about 0.22 of its potential returns per unit of risk. STMICROELECTRONICS is currently generating about -0.05 per unit of risk. If you would invest  40,045  in Microsoft on September 28, 2024 and sell it today you would earn a total of  1,785  from holding Microsoft or generate 4.46% return on investment over 90 days.

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

Microsoft  vs.  STMICROELECTRONICS

Microsoft

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in January 2025.

STMICROELECTRONICS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days STMICROELECTRONICS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's primary indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Microsoft and STMICROELECTRONICS

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

The idea behind Microsoft and STMICROELECTRONICS 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.