Correlation Between Microsoft and SEI Exchange

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

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

Diversification Opportunities for Microsoft and SEI Exchange

0.45

Correlation Coefficient

Microsoft  SEI Exchange

Very weak diversification

The 3 months correlation between Microsoft and SEI is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and SEI Exchange Traded in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SEI Exchange Traded 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 SEI Exchange. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SEI Exchange Traded has no effect on the direction of Microsoft i.e., Microsoft and SEI Exchange go up and down completely randomly.

Pair Corralation between Microsoft and SEI Exchange

Given the investment horizon of 90 days Microsoft is expected to generate 1.56 times more return on investment than SEI Exchange. However, Microsoft is 1.56 times more volatile than SEI Exchange Traded. It trades about 0.09 of its potential returns per unit of risk. SEI Exchange Traded is currently generating about 0.12 per unit of risk. If you would invest  23,571  in Microsoft on September 23, 2024 and sell it today you would earn a total of  20,089  from holding Microsoft or generate 85.23% return on investment over 90 days.

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

Microsoft  vs.  SEI Exchange Traded

Microsoft

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

SEI Exchange Traded

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SEI Exchange Traded are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile forward indicators, SEI Exchange may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Microsoft and SEI Exchange

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

The idea behind Microsoft and SEI Exchange Traded 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.