Correlation Between SLR Investment and Microsoft

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

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

Diversification Opportunities for SLR Investment and Microsoft

0.85

Correlation Coefficient

SLR Investment  Microsoft

Very poor diversification

The 3 months correlation between SLR and Microsoft is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding SLR Investment Corp and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and SLR Investment 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 SLR Investment Corp 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 SLR Investment i.e., SLR Investment and Microsoft go up and down completely randomly.

Pair Corralation between SLR Investment and Microsoft

Assuming the 90 days horizon SLR Investment is expected to generate 1.69 times less return on investment than Microsoft. But when comparing it to its historical volatility, SLR Investment Corp is 1.18 times less risky than Microsoft. It trades about 0.07 of its potential returns per unit of risk. Microsoft is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  21,725  in Microsoft on October 11, 2024 and sell it today you would earn a total of  19,350  from holding Microsoft or generate 89.07% return on investment over 90 days.

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

SLR Investment Corp  vs.  Microsoft

SLR Investment Corp

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SLR Investment Corp are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, SLR Investment reported 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 basic indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with SLR Investment and Microsoft

The main advantage of trading using opposite SLR Investment and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SLR Investment 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 SLR Investment Corp 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.

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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.