Correlation Between Steven Madden and MICROSOFT

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

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

Diversification Opportunities for Steven Madden and MICROSOFT

0.39

Correlation Coefficient

Steven Madden  MICROSOFT

Weak diversification

The 3 months correlation between Steven and MICROSOFT is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Steven Madden and MICROSOFT PORATION in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MICROSOFT PORATION and Steven Madden 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 Steven Madden 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 PORATION has no effect on the direction of Steven Madden i.e., Steven Madden and MICROSOFT go up and down completely randomly.

Pair Corralation between Steven Madden and MICROSOFT

Given the investment horizon of 90 days Steven Madden is expected to generate 1.6 times more return on investment than MICROSOFT. However, Steven Madden is 1.6 times more volatile than MICROSOFT PORATION. It trades about 0.0 of its potential returns per unit of risk. MICROSOFT PORATION is currently generating about -0.03 per unit of risk. If you would invest  4,390  in Steven Madden on September 12, 2024 and sell it today you would lose (38.00) from holding Steven Madden or give up 0.87% of portfolio value over 90 days.

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

Steven Madden  vs.  MICROSOFT PORATION

Steven Madden

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Steven Madden has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Steven Madden is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

MICROSOFT PORATION

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MICROSOFT PORATION has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, MICROSOFT is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Steven Madden and MICROSOFT

The main advantage of trading using opposite Steven Madden and MICROSOFT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Steven Madden 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 Steven Madden and MICROSOFT PORATION 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.