Correlation Between Microsoft and Stock Yards

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

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

Diversification Opportunities for Microsoft and Stock Yards

0.3

Correlation Coefficient

Microsoft  Stock Yards

Weak diversification

The 3 months correlation between Microsoft and Stock is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Stock Yards Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stock Yards Bancorp 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 Stock Yards. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stock Yards Bancorp has no effect on the direction of Microsoft i.e., Microsoft and Stock Yards go up and down completely randomly.

Pair Corralation between Microsoft and Stock Yards

Given the investment horizon of 90 days Microsoft is expected to generate 0.64 times more return on investment than Stock Yards. However, Microsoft is 1.56 times less risky than Stock Yards. It trades about 0.1 of its potential returns per unit of risk. Stock Yards Bancorp is currently generating about 0.03 per unit of risk. If you would invest  23,488  in Microsoft on September 13, 2024 and sell it today you would earn a total of  21,411  from holding Microsoft or generate 91.16% return on investment over 90 days.

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

Microsoft  vs.  Stock Yards Bancorp

Microsoft

Risk-Adjusted Performance

4 of 100

Modest

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.

Stock Yards Bancorp

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Stock Yards Bancorp are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady fundamental drivers, Stock Yards unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Stock Yards

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

The idea behind Microsoft and Stock Yards Bancorp 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.