Correlation Between Microsoft and Inter Parfums

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

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

Diversification Opportunities for Microsoft and Inter Parfums

0.49

Correlation Coefficient

Microsoft  Inter Parfums

Very weak diversification

The 3 months correlation between Microsoft and Inter is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Inter Parfums in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inter Parfums 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 Inter Parfums. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inter Parfums has no effect on the direction of Microsoft i.e., Microsoft and Inter Parfums go up and down completely randomly.

Pair Corralation between Microsoft and Inter Parfums

Given the investment horizon of 90 days Microsoft is expected to under-perform the Inter Parfums. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.31 times less risky than Inter Parfums. The stock trades about -0.08 of its potential returns per unit of risk. The Inter Parfums is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  12,976  in Inter Parfums on December 29, 2024 and sell it today you would lose (827.00) from holding Inter Parfums or give up 6.37% of portfolio value over 90 days.

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

Microsoft  vs.  Inter Parfums

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.

Inter Parfums

Risk-Adjusted Performance

Very Weak

Over the last 90 days Inter Parfums has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Inter Parfums is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Microsoft and Inter Parfums

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

The idea behind Microsoft and Inter Parfums 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.