Correlation Between Microsoft and Stet Intermediate

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

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

Diversification Opportunities for Microsoft and Stet Intermediate

0.06

Correlation Coefficient

Microsoft  Stet Intermediate

Significant diversification

The 3 months correlation between Microsoft and Stet is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Stet Intermediate Term in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stet Intermediate Term 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 Stet Intermediate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stet Intermediate Term has no effect on the direction of Microsoft i.e., Microsoft and Stet Intermediate go up and down completely randomly.

Pair Corralation between Microsoft and Stet Intermediate

Given the investment horizon of 90 days Microsoft is expected to generate 5.18 times more return on investment than Stet Intermediate. However, Microsoft is 5.18 times more volatile than Stet Intermediate Term. It trades about 0.09 of its potential returns per unit of risk. Stet Intermediate Term is currently generating about -0.04 per unit of risk. If you would invest  40,807  in Microsoft on February 15, 2025 and sell it today you would earn a total of  4,506  from holding Microsoft or generate 11.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Microsoft  vs.  Stet Intermediate Term

Microsoft

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in June 2025.

Stet Intermediate Term

Risk-Adjusted Performance

Very Weak

Over the last 90 days Stet Intermediate Term has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Stet Intermediate is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Microsoft and Stet Intermediate

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

The idea behind Microsoft and Stet Intermediate Term 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.

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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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.