Correlation Between Microsoft and Sterling Metals
Can any of the company-specific risk be diversified away by investing in both Microsoft and Sterling Metals 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 Sterling Metals into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Sterling Metals Corp, you can compare the effects of market volatilities on Microsoft and Sterling Metals 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 Sterling Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Sterling Metals.
Diversification Opportunities for Microsoft and Sterling Metals
-0.3 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Microsoft and Sterling is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Sterling Metals Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sterling Metals Corp 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 Sterling Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sterling Metals Corp has no effect on the direction of Microsoft i.e., Microsoft and Sterling Metals go up and down completely randomly.
Pair Corralation between Microsoft and Sterling Metals
Given the investment horizon of 90 days Microsoft is expected to under-perform the Sterling Metals. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 5.09 times less risky than Sterling Metals. The stock trades about -0.06 of its potential returns per unit of risk. The Sterling Metals Corp is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 3.73 in Sterling Metals Corp on November 5, 2024 and sell it today you would lose (0.01) from holding Sterling Metals Corp or give up 0.27% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Sterling Metals Corp
Performance |
| Timeline |
| Microsoft |
| Sterling Metals Corp |
Microsoft and Sterling Metals Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Sterling Metals
The main advantage of trading using opposite Microsoft and Sterling Metals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Sterling Metals 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 Sterling Metals will offset losses from the drop in Sterling Metals' long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Adobe Systems Incorporated | Microsoft vs. Crowdstrike Holdings |
| Sterling Metals vs. Hannan Metals | Sterling Metals vs. Atco Mining | Sterling Metals vs. Leading Edge Materials | Sterling Metals vs. Arianne Phosphate |
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.
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