Correlation Between Microsoft and Stone Ridge

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

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

Diversification Opportunities for Microsoft and Stone Ridge

0.34

Correlation Coefficient

Microsoft  Stone Ridge

Weak diversification

The 3 months correlation between Microsoft and Stone is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Stone Ridge Diversified in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stone Ridge Diversified 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 Stone Ridge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stone Ridge Diversified has no effect on the direction of Microsoft i.e., Microsoft and Stone Ridge go up and down completely randomly.

Pair Corralation between Microsoft and Stone Ridge

Given the investment horizon of 90 days Microsoft is expected to generate 8.34 times more return on investment than Stone Ridge. However, Microsoft is 8.34 times more volatile than Stone Ridge Diversified. It trades about 0.22 of its potential returns per unit of risk. Stone Ridge Diversified is currently generating about 0.61 per unit of risk. If you would invest  42,604  in Microsoft on September 15, 2024 and sell it today you would earn a total of  2,123  from holding Microsoft or generate 4.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Microsoft  vs.  Stone Ridge Diversified

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 latest stock price uproar, may contribute to short-horizon losses for the private investors.

Stone Ridge Diversified

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Stone Ridge Diversified are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental drivers, Stone Ridge 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 Stone Ridge

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

The idea behind Microsoft and Stone Ridge Diversified 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.