Correlation Between Microsoft and Innate Pharma

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

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

Diversification Opportunities for Microsoft and Innate Pharma

-0.4

Correlation Coefficient

Microsoft  Innate Pharma

Very good diversification

The 3 months correlation between Microsoft and Innate is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Innate Pharma in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innate Pharma 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 Innate Pharma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innate Pharma has no effect on the direction of Microsoft i.e., Microsoft and Innate Pharma go up and down completely randomly.

Pair Corralation between Microsoft and Innate Pharma

Given the investment horizon of 90 days Microsoft is expected to under-perform the Innate Pharma. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.67 times less risky than Innate Pharma. The stock trades about -0.11 of its potential returns per unit of risk. The Innate Pharma is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  194.00  in Innate Pharma on December 30, 2024 and sell it today you would lose (8.00) from holding Innate Pharma or give up 4.12% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.38%
Values	Daily Returns

Microsoft  vs.  Innate Pharma

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.

Innate Pharma

Risk-Adjusted Performance

Very Weak

Over the last 90 days Innate Pharma has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical indicators, Innate Pharma is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Microsoft and Innate Pharma

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

The idea behind Microsoft and Innate Pharma 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 Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.