Correlation Between Microsoft and SandRidge Energy
Can any of the company-specific risk be diversified away by investing in both Microsoft and SandRidge Energy 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 SandRidge Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and SandRidge Energy, you can compare the effects of market volatilities on Microsoft and SandRidge Energy 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 SandRidge Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and SandRidge Energy.
Diversification Opportunities for Microsoft and SandRidge Energy
-0.25 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Microsoft and SandRidge is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and SandRidge Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SandRidge Energy 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 SandRidge Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SandRidge Energy has no effect on the direction of Microsoft i.e., Microsoft and SandRidge Energy go up and down completely randomly.
Pair Corralation between Microsoft and SandRidge Energy
Given the investment horizon of 90 days Microsoft is expected to under-perform the SandRidge Energy. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.11 times less risky than SandRidge Energy. The stock trades about -0.04 of its potential returns per unit of risk. The SandRidge Energy is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 1,108 in SandRidge Energy on August 31, 2024 and sell it today you would earn a total of 54.00 from holding SandRidge Energy or generate 4.87% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. SandRidge Energy
Performance |
| Timeline |
| Microsoft |
| SandRidge Energy |
Microsoft and SandRidge Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and SandRidge Energy
The main advantage of trading using opposite Microsoft and SandRidge Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, SandRidge Energy 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 SandRidge Energy will offset losses from the drop in SandRidge Energy's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| SandRidge Energy vs. Range Resources Corp | SandRidge Energy vs. SM Energy Co | SandRidge Energy vs. Northern Oil Gas |
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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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