Correlation Between Microsoft and MITH

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

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

Diversification Opportunities for Microsoft and MITH

0.44

Correlation Coefficient

Microsoft  MITH

Very weak diversification

The 3 months correlation between Microsoft and MITH is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and MITH in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MITH 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 MITH. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MITH has no effect on the direction of Microsoft i.e., Microsoft and MITH go up and down completely randomly.

Pair Corralation between Microsoft and MITH

Given the investment horizon of 90 days Microsoft is expected to generate 0.09 times more return on investment than MITH. However, Microsoft is 10.63 times less risky than MITH. It trades about -0.11 of its potential returns per unit of risk. MITH is currently generating about -0.08 per unit of risk. If you would invest  42,398  in Microsoft on December 30, 2024 and sell it today you would lose (4,518) from holding Microsoft or give up 10.66% of portfolio value over 90 days.

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

Microsoft  vs.  MITH

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.

MITH

Risk-Adjusted Performance

Very Weak

Over the last 90 days MITH has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Crypto's fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for MITH shareholders.

Pair Trading with Microsoft and MITH

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

The idea behind Microsoft and MITH 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.