Correlation Between STORE ELECTRONIC and Microsoft

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

By analyzing existing cross correlation between STORE ELECTRONIC and Microsoft, you can compare the effects of market volatilities on STORE ELECTRONIC and Microsoft 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 STORE ELECTRONIC with a short position of Microsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of STORE ELECTRONIC and Microsoft.

Diversification Opportunities for STORE ELECTRONIC and Microsoft

-0.15

Correlation Coefficient

STORE ELECTRONIC  Microsoft

Good diversification

The 3 months correlation between STORE and Microsoft is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding STORE ELECTRONIC and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and STORE ELECTRONIC 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 STORE ELECTRONIC are associated (or correlated) with Microsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft has no effect on the direction of STORE ELECTRONIC i.e., STORE ELECTRONIC and Microsoft go up and down completely randomly.

Pair Corralation between STORE ELECTRONIC and Microsoft

Assuming the 90 days trading horizon STORE ELECTRONIC is expected to generate 1.85 times more return on investment than Microsoft. However, STORE ELECTRONIC is 1.85 times more volatile than Microsoft. It trades about 0.07 of its potential returns per unit of risk. Microsoft is currently generating about -0.02 per unit of risk. If you would invest  14,350  in STORE ELECTRONIC on October 4, 2024 and sell it today you would earn a total of  3,130  from holding STORE ELECTRONIC or generate 21.81% return on investment over 90 days.

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

STORE ELECTRONIC  vs.  Microsoft

STORE ELECTRONIC

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in STORE ELECTRONIC are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile primary indicators, STORE ELECTRONIC exhibited solid returns over the last few months and may actually be approaching a breakup point.

Microsoft

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with STORE ELECTRONIC and Microsoft

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

The idea behind STORE ELECTRONIC and Microsoft 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.