Correlation Between Microsoft and SIRIUS XM

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

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

Diversification Opportunities for Microsoft and SIRIUS XM

0.09

Correlation Coefficient

Microsoft  SIRIUS XM

Significant diversification

The 3 months correlation between Microsoft and SIRIUS is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and SIRIUS XM RADIO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SIRIUS XM RADIO 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 SIRIUS XM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SIRIUS XM RADIO has no effect on the direction of Microsoft i.e., Microsoft and SIRIUS XM go up and down completely randomly.

Pair Corralation between Microsoft and SIRIUS XM

Assuming the 90 days trading horizon Microsoft is expected to under-perform the SIRIUS XM. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 2.1 times less risky than SIRIUS XM. The stock trades about -0.05 of its potential returns per unit of risk. The SIRIUS XM RADIO is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  2,467  in SIRIUS XM RADIO on November 28, 2024 and sell it today you would lose (11.00) from holding SIRIUS XM RADIO or give up 0.45% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	85.0%
Values	Daily Returns

Microsoft  vs.  SIRIUS XM RADIO

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 comparatively stable basic indicators, Microsoft is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

SIRIUS XM RADIO

Risk-Adjusted Performance

Weak

Over the last 90 days SIRIUS XM RADIO has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, SIRIUS XM is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Microsoft and SIRIUS XM

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

The idea behind Microsoft and SIRIUS XM RADIO 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.