Correlation Between Microsoft and Short-term Income

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

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

Diversification Opportunities for Microsoft and Short-term Income

-0.86

Correlation Coefficient

Microsoft  Short-term Income

Pay attention - limited upside

The 3 months correlation between Microsoft and Short-term is -0.86. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Short Term Income Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Term Income 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 Short-term Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Short Term Income has no effect on the direction of Microsoft i.e., Microsoft and Short-term Income go up and down completely randomly.

Pair Corralation between Microsoft and Short-term Income

Given the investment horizon of 90 days Microsoft is expected to under-perform the Short-term Income. In addition to that, Microsoft is 13.12 times more volatile than Short Term Income Fund. It trades about -0.1 of its total potential returns per unit of risk. Short Term Income Fund is currently generating about 0.23 per unit of volatility. If you would invest  1,185  in Short Term Income Fund on December 22, 2024 and sell it today you would earn a total of  20.00  from holding Short Term Income Fund or generate 1.69% return on investment over 90 days.

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

Microsoft  vs.  Short Term Income Fund

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.

Short Term Income

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Short Term Income Fund are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Short-term Income 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 Short-term Income

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

The idea behind Microsoft and Short Term Income Fund 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.

Check out your portfolio center.

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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.