Correlation Between Microsoft and Siit Intermediate

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

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

Diversification Opportunities for Microsoft and Siit Intermediate

0.2

Correlation Coefficient

Microsoft  Siit Intermediate

Modest diversification

The 3 months correlation between Microsoft and Siit is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Siit Intermediate Duration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Siit Intermediate 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 Siit Intermediate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Siit Intermediate has no effect on the direction of Microsoft i.e., Microsoft and Siit Intermediate go up and down completely randomly.

Pair Corralation between Microsoft and Siit Intermediate

Given the investment horizon of 90 days Microsoft is expected to generate 2.76 times more return on investment than Siit Intermediate. However, Microsoft is 2.76 times more volatile than Siit Intermediate Duration. It trades about 0.47 of its potential returns per unit of risk. Siit Intermediate Duration is currently generating about 0.04 per unit of risk. If you would invest  41,493  in Microsoft on September 17, 2024 and sell it today you would earn a total of  3,666  from holding Microsoft or generate 8.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Microsoft  vs.  Siit Intermediate Duration

Microsoft

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 4 (%) 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.

Siit Intermediate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Siit Intermediate Duration has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Siit Intermediate 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 Siit Intermediate

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

The idea behind Microsoft and Siit Intermediate Duration 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.