Correlation Between Microsoft and Stemtech

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Can any of the company-specific risk be diversified away by investing in both Microsoft and Stemtech 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 Stemtech into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Stemtech, you can compare the effects of market volatilities on Microsoft and Stemtech 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 Stemtech. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Stemtech.

Diversification Opportunities for Microsoft and Stemtech

0.53
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Microsoft and Stemtech is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Stemtech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stemtech 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 Stemtech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stemtech has no effect on the direction of Microsoft i.e., Microsoft and Stemtech go up and down completely randomly.

Pair Corralation between Microsoft and Stemtech

Given the investment horizon of 90 days Microsoft is expected to generate 0.29 times more return on investment than Stemtech. However, Microsoft is 3.43 times less risky than Stemtech. It trades about 0.15 of its potential returns per unit of risk. Stemtech is currently generating about -0.27 per unit of risk. If you would invest  22,723  in Microsoft on September 8, 2022 and sell it today you would earn a total of  1,789  from holding Microsoft or generate 7.87% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Microsoft  vs.  Stemtech

 Performance (%) 
       Timeline  
Microsoft 
Microsoft Performance
0 of 100
Over the last 90 days Microsoft has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Microsoft Price Channel

Stemtech 
Stemtech Performance
0 of 100
Over the last 90 days Stemtech has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in January 2023. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Stemtech Price Channel

Microsoft and Stemtech Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Microsoft and Stemtech

The main advantage of trading using opposite Microsoft and Stemtech positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Stemtech 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 Stemtech will offset losses from the drop in Stemtech's long position.
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The idea behind Microsoft and Stemtech 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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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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.

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