Correlation Between Microsoft and State Street
Can any of the company-specific risk be diversified away by investing in both Microsoft and State Street 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 State Street into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and State Street Master, you can compare the effects of market volatilities on Microsoft and State Street 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 State Street. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and State Street.
Diversification Opportunities for Microsoft and State Street
0.23 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Microsoft and State is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and State Street Master in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on State Street Master 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 State Street. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of State Street Master has no effect on the direction of Microsoft i.e., Microsoft and State Street go up and down completely randomly.
Pair Corralation between Microsoft and State Street
Given the investment horizon of 90 days Microsoft is expected to generate 4.83 times more return on investment than State Street. However, Microsoft is 4.83 times more volatile than State Street Master. It trades about 0.04 of its potential returns per unit of risk. State Street Master is currently generating about 0.06 per unit of risk. If you would invest 37,610 in Microsoft on August 26, 2024 and sell it today you would earn a total of 4,090 from holding Microsoft or generate 10.87% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 98.42% |
| Values | Daily Returns |
Microsoft vs. State Street Master
Performance |
| Timeline |
| Microsoft |
| State Street Master |
Microsoft and State Street Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and State Street
The main advantage of trading using opposite Microsoft and State Street positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, State Street 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 State Street will offset losses from the drop in State Street's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| State Street vs. Davis Financial Fund | State Street vs. Mesirow Financial Small | State Street vs. Prudential Jennison Financial | State Street vs. Transamerica Financial Life |
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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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