Correlation Between Microsoft and Short Duration

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

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

Diversification Opportunities for Microsoft and Short Duration

-0.9

Correlation Coefficient

Microsoft  Short Duration

Pay attention - limited upside

The 3 months correlation between Microsoft and Short is -0.9. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Short Duration Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Duration Income 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 Duration. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Short Duration Income has no effect on the direction of Microsoft i.e., Microsoft and Short Duration go up and down completely randomly.

Pair Corralation between Microsoft and Short Duration

Given the investment horizon of 90 days Microsoft is expected to under-perform the Short Duration. In addition to that, Microsoft is 13.97 times more volatile than Short Duration Income. It trades about -0.11 of its total potential returns per unit of risk. Short Duration Income is currently generating about 0.2 per unit of volatility. If you would invest  1,184  in Short Duration Income on December 29, 2024 and sell it today you would earn a total of  17.00  from holding Short Duration Income or generate 1.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

Microsoft  vs.  Short Duration Income

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.

Short Duration Income

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Short Duration Income are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Short Duration 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 Duration

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

The idea behind Microsoft and Short Duration Income 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.