Correlation Between Microsoft and Stepan
Can any of the company-specific risk be diversified away by investing in both Microsoft and Stepan 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 Stepan into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Stepan Company, you can compare the effects of market volatilities on Microsoft and Stepan 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 Stepan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Stepan.
Diversification Opportunities for Microsoft and Stepan
Average diversification
The 3 months correlation between Microsoft and Stepan is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Stepan Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stepan Company 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 Stepan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stepan Company has no effect on the direction of Microsoft i.e., Microsoft and Stepan go up and down completely randomly.
Pair Corralation between Microsoft and Stepan
Given the investment horizon of 90 days Microsoft is expected to generate 0.8 times more return on investment than Stepan. However, Microsoft is 1.25 times less risky than Stepan. It trades about 0.09 of its potential returns per unit of risk. Stepan Company is currently generating about -0.03 per unit of risk. If you would invest 24,146 in Microsoft on August 30, 2024 and sell it today you would earn a total of 18,153 from holding Microsoft or generate 75.18% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Stepan Company
Performance |
| Timeline |
| Microsoft |
| Stepan Company |
Microsoft and Stepan Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Stepan
The main advantage of trading using opposite Microsoft and Stepan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Stepan 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 Stepan will offset losses from the drop in Stepan's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.
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