Correlation Between Microsoft and STERIS Plc

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

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

Diversification Opportunities for Microsoft and STERIS Plc

-0.09

Correlation Coefficient

Microsoft  STERIS Plc

Good diversification

The 3 months correlation between Microsoft and STERIS is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and STERIS plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STERIS plc 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 STERIS Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STERIS plc has no effect on the direction of Microsoft i.e., Microsoft and STERIS Plc go up and down completely randomly.

Pair Corralation between Microsoft and STERIS Plc

Assuming the 90 days trading horizon Microsoft is expected to generate 53.2 times more return on investment than STERIS Plc. However, Microsoft is 53.2 times more volatile than STERIS plc. It trades about 0.38 of its potential returns per unit of risk. STERIS plc is currently generating about 0.13 per unit of risk. If you would invest  8,866  in Microsoft on April 23, 2025 and sell it today you would earn a total of  3,009  from holding Microsoft or generate 33.94% return on investment over 90 days.

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

Microsoft  vs.  STERIS plc

Microsoft

Risk-Adjusted Performance

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 30 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Microsoft sustained solid returns over the last few months and may actually be approaching a breakup point.

STERIS plc

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in STERIS plc are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, STERIS Plc 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 STERIS Plc

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

The idea behind Microsoft and STERIS plc 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.