Correlation Between Microsoft and Insperity

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

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

Diversification Opportunities for Microsoft and Insperity

0.35

Correlation Coefficient

Microsoft  Insperity

Weak diversification

The 3 months correlation between Microsoft and Insperity is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Insperity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Insperity 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 Insperity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Insperity has no effect on the direction of Microsoft i.e., Microsoft and Insperity go up and down completely randomly.

Pair Corralation between Microsoft and Insperity

Given the investment horizon of 90 days Microsoft is expected to generate 0.42 times more return on investment than Insperity. However, Microsoft is 2.41 times less risky than Insperity. It trades about -0.2 of its potential returns per unit of risk. Insperity is currently generating about -0.11 per unit of risk. If you would invest  44,357  in Microsoft on October 7, 2024 and sell it today you would lose (2,022) from holding Microsoft or give up 4.56% of portfolio value over 90 days.

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

Microsoft  vs.  Insperity

Microsoft

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 3 (%) 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.

Insperity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Insperity has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Insperity is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Microsoft and Insperity

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

The idea behind Microsoft and Insperity 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.