Correlation Between Microsoft and STMICROELECTRONICS
Can any of the company-specific risk be diversified away by investing in both Microsoft and STMICROELECTRONICS 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 STMICROELECTRONICS into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and STMICROELECTRONICS, you can compare the effects of market volatilities on Microsoft and STMICROELECTRONICS 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 STMICROELECTRONICS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and STMICROELECTRONICS.
Diversification Opportunities for Microsoft and STMICROELECTRONICS
-0.51 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Microsoft and STMICROELECTRONICS is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and STMICROELECTRONICS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMICROELECTRONICS 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 STMICROELECTRONICS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STMICROELECTRONICS has no effect on the direction of Microsoft i.e., Microsoft and STMICROELECTRONICS go up and down completely randomly.
Pair Corralation between Microsoft and STMICROELECTRONICS
Assuming the 90 days trading horizon Microsoft is expected to generate 0.65 times more return on investment than STMICROELECTRONICS. However, Microsoft is 1.54 times less risky than STMICROELECTRONICS. It trades about 0.07 of its potential returns per unit of risk. STMICROELECTRONICS is currently generating about -0.13 per unit of risk. If you would invest 37,690 in Microsoft on September 2, 2024 and sell it today you would earn a total of 2,300 from holding Microsoft or generate 6.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. STMICROELECTRONICS
Performance |
| Timeline |
| Microsoft |
| STMICROELECTRONICS |
Microsoft and STMICROELECTRONICS Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and STMICROELECTRONICS
The main advantage of trading using opposite Microsoft and STMICROELECTRONICS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, STMICROELECTRONICS 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 STMICROELECTRONICS will offset losses from the drop in STMICROELECTRONICS's long position.| Microsoft vs. WESTLAKE CHEMICAL | Microsoft vs. Silicon Motion Technology | Microsoft vs. AWILCO DRILLING PLC | Microsoft vs. PRECISION DRILLING P |
| STMICROELECTRONICS vs. Align Technology | STMICROELECTRONICS vs. AIR PRODCHEMICALS | STMICROELECTRONICS vs. Micron Technology | STMICROELECTRONICS vs. AECOM TECHNOLOGY |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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