Correlation Between Microsoft and US Bancorp

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

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

Diversification Opportunities for Microsoft and US Bancorp

0.41

Correlation Coefficient

Microsoft  US Bancorp

Very weak diversification

The 3 months correlation between Microsoft and USB-PQ is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and US Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US 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 US Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Bancorp has no effect on the direction of Microsoft i.e., Microsoft and US Bancorp go up and down completely randomly.

Pair Corralation between Microsoft and US Bancorp

Given the investment horizon of 90 days Microsoft is expected to under-perform the US Bancorp. In addition to that, Microsoft is 1.65 times more volatile than US Bancorp. It trades about -0.11 of its total potential returns per unit of risk. US Bancorp is currently generating about -0.06 per unit of volatility. If you would invest  1,650  in US Bancorp on December 30, 2024 and sell it today you would lose (58.00) from holding US Bancorp or give up 3.52% of portfolio value over 90 days.

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

Microsoft  vs.  US Bancorp

Microsoft

Risk-Adjusted Performance

Very Weak

Over the last 90 days Microsoft has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

US Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days US Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental drivers, US Bancorp is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Microsoft and US Bancorp

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

The idea behind Microsoft and US 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.

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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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.