Correlation Between Microsoft and KeyCorp

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

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

Diversification Opportunities for Microsoft and KeyCorp

0.22

Correlation Coefficient

Microsoft  KeyCorp

Modest diversification

The 3 months correlation between Microsoft and KeyCorp is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and KeyCorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KeyCorp 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 KeyCorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KeyCorp has no effect on the direction of Microsoft i.e., Microsoft and KeyCorp go up and down completely randomly.

Pair Corralation between Microsoft and KeyCorp

Given the investment horizon of 90 days Microsoft is expected to generate 1.2 times more return on investment than KeyCorp. However, Microsoft is 1.2 times more volatile than KeyCorp. It trades about 0.2 of its potential returns per unit of risk. KeyCorp is currently generating about -0.17 per unit of risk. If you would invest  41,493  in Microsoft on September 19, 2024 and sell it today you would earn a total of  2,246  from holding Microsoft or generate 5.41% return on investment over 90 days.

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

Microsoft  vs.  KeyCorp

Microsoft

Risk-Adjusted Performance

0 of 100

Insignificant

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

KeyCorp

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in KeyCorp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, KeyCorp reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and KeyCorp

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

The idea behind Microsoft and KeyCorp 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 CEOs Directory module to screen CEOs from public companies around the world.