Correlation Between Microsoft and SCANSOURCE

Can any of the company-specific risk be diversified away by investing in both Microsoft and SCANSOURCE 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 SCANSOURCE into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Microsoft and SCANSOURCE, you can compare the effects of market volatilities on Microsoft and SCANSOURCE 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 SCANSOURCE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and SCANSOURCE.

Diversification Opportunities for Microsoft and SCANSOURCE

0.89

Correlation Coefficient

Microsoft  SCANSOURCE

Very poor diversification

The 3 months correlation between Microsoft and SCANSOURCE is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and SCANSOURCE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SCANSOURCE 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 SCANSOURCE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SCANSOURCE has no effect on the direction of Microsoft i.e., Microsoft and SCANSOURCE go up and down completely randomly.

Pair Corralation between Microsoft and SCANSOURCE

Assuming the 90 days trading horizon Microsoft is expected to generate 0.74 times more return on investment than SCANSOURCE. However, Microsoft is 1.35 times less risky than SCANSOURCE. It trades about 0.32 of its potential returns per unit of risk. SCANSOURCE is currently generating about 0.18 per unit of risk. If you would invest  31,942  in Microsoft on April 22, 2025 and sell it today you would earn a total of  11,958  from holding Microsoft or generate 37.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Microsoft  vs.  SCANSOURCE

Microsoft

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Microsoft unveiled solid returns over the last few months and may actually be approaching a breakup point.

SCANSOURCE

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SCANSOURCE are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, SCANSOURCE unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and SCANSOURCE

The main advantage of trading using opposite Microsoft and SCANSOURCE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, SCANSOURCE 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 SCANSOURCE will offset losses from the drop in SCANSOURCE's long position.

The idea behind Microsoft and SCANSOURCE pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.