Correlation Between Microsoft and Short-term Investment

Can any of the company-specific risk be diversified away by investing in both Microsoft and Short-term Investment 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 Investment 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 Investment Trust, you can compare the effects of market volatilities on Microsoft and Short-term Investment 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 Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Short-term Investment.

Diversification Opportunities for Microsoft and Short-term Investment

0.0

Correlation Coefficient

Microsoft  Short-term Investment

Pay attention - limited upside

The 3 months correlation between Microsoft and Short-term is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Short Term Investment Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Term Investment 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 Investment. 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 Investment has no effect on the direction of Microsoft i.e., Microsoft and Short-term Investment go up and down completely randomly.

Pair Corralation between Microsoft and Short-term Investment

If you would invest  42,388  in Microsoft on October 24, 2024 and sell it today you would earn a total of  2,228  from holding Microsoft or generate 5.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

Microsoft  vs.  Short Term Investment Trust

Microsoft

Risk-Adjusted Performance

5 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 5 (%) 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.

Short Term Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Short Term Investment Trust has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Short-term Investment 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 Investment

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

The idea behind Microsoft and Short Term Investment Trust 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.