Correlation Between Microsoft and Cullen/Frost Bankers

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

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

Diversification Opportunities for Microsoft and Cullen/Frost Bankers

0.59

Correlation Coefficient

Microsoft  Cullen/Frost Bankers

Very weak diversification

The 3 months correlation between Microsoft and Cullen/Frost is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and CullenFrost Bankers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cullen/Frost Bankers 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 Cullen/Frost Bankers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cullen/Frost Bankers has no effect on the direction of Microsoft i.e., Microsoft and Cullen/Frost Bankers go up and down completely randomly.

Pair Corralation between Microsoft and Cullen/Frost Bankers

Given the investment horizon of 90 days Microsoft is expected to generate 0.98 times more return on investment than Cullen/Frost Bankers. However, Microsoft is 1.02 times less risky than Cullen/Frost Bankers. It trades about -0.11 of its potential returns per unit of risk. CullenFrost Bankers is currently generating about -0.13 per unit of risk. If you would invest  43,723  in Microsoft on December 25, 2024 and sell it today you would lose (4,415) from holding Microsoft or give up 10.1% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.33%
Values	Daily Returns

Microsoft  vs.  CullenFrost Bankers

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 latest abnormal performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Cullen/Frost Bankers

Risk-Adjusted Performance

Very Weak

Over the last 90 days CullenFrost Bankers has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Microsoft and Cullen/Frost Bankers

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

The idea behind Microsoft and CullenFrost Bankers 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.