Correlation Between State Bank and Microsoft

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

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

Diversification Opportunities for State Bank and Microsoft

0.65

Correlation Coefficient

State Bank  Microsoft

Poor diversification

The 3 months correlation between State and Microsoft is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding State Bank of and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and State Bank 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 State Bank of 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 State Bank i.e., State Bank and Microsoft go up and down completely randomly.

Pair Corralation between State Bank and Microsoft

Assuming the 90 days trading horizon State Bank of is expected to generate 0.63 times more return on investment than Microsoft. However, State Bank of is 1.59 times less risky than Microsoft. It trades about -0.11 of its potential returns per unit of risk. Microsoft is currently generating about -0.08 per unit of risk. If you would invest  9,610  in State Bank of on December 23, 2024 and sell it today you would lose (860.00) from holding State Bank of or give up 8.95% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

State Bank of  vs.  Microsoft

State Bank

Risk-Adjusted Performance

Very Weak

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

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 unsteady performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with State Bank and Microsoft

The main advantage of trading using opposite State Bank and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if State Bank 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 State Bank of 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.