Correlation Between Microsoft and STEP Energy
Can any of the company-specific risk be diversified away by investing in both Microsoft and STEP 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 STEP Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and STEP Energy Services, you can compare the effects of market volatilities on Microsoft and STEP 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 STEP Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and STEP Energy.
Diversification Opportunities for Microsoft and STEP Energy
-0.17 | Correlation Coefficient |
Good diversification
The 3 months correlation between Microsoft and STEP is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and STEP Energy Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STEP Energy Services 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 STEP Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STEP Energy Services has no effect on the direction of Microsoft i.e., Microsoft and STEP Energy go up and down completely randomly.
Pair Corralation between Microsoft and STEP Energy
Given the investment horizon of 90 days Microsoft is expected to generate 12.18 times less return on investment than STEP Energy. But when comparing it to its historical volatility, Microsoft is 8.08 times less risky than STEP Energy. It trades about 0.15 of its potential returns per unit of risk. STEP Energy Services is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest 252.00 in STEP Energy Services on September 2, 2024 and sell it today you would earn a total of 113.00 from holding STEP Energy Services or generate 44.84% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Microsoft vs. STEP Energy Services
Performance |
| Timeline |
| Microsoft |
| STEP Energy Services |
Microsoft and STEP Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and STEP Energy
The main advantage of trading using opposite Microsoft and STEP Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, STEP 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 STEP Energy will offset losses from the drop in STEP Energy's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| STEP Energy vs. Total Energy Services | STEP Energy vs. Trican Well Service | STEP Energy vs. Koil Energy Solutions | STEP Energy vs. TerraVest Industries |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
Other Complementary Tools
| Price Transformation Use Price Transformation models to analyze the depth of different equity instruments across global markets | |
| Price Exposure Probability Analyze equity upside and downside potential for a given time horizon across multiple markets | |
| Odds Of Bankruptcy Get analysis of equity chance of financial distress in the next 2 years | |
| Price Ceiling Movement Calculate and plot Price Ceiling Movement for different equity instruments | |
| ETFs Find actively traded Exchange Traded Funds (ETF) from around the world |