Correlation Between Microsoft and Catalyst Pharmaceuticals

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

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

Diversification Opportunities for Microsoft and Catalyst Pharmaceuticals

-0.58

Correlation Coefficient

Microsoft  Catalyst Pharmaceuticals

Excellent diversification

The 3 months correlation between Microsoft and Catalyst is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Catalyst Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Catalyst Pharmaceuticals 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 Catalyst Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Catalyst Pharmaceuticals has no effect on the direction of Microsoft i.e., Microsoft and Catalyst Pharmaceuticals go up and down completely randomly.

Pair Corralation between Microsoft and Catalyst Pharmaceuticals

Given the investment horizon of 90 days Microsoft is expected to generate 0.65 times more return on investment than Catalyst Pharmaceuticals. However, Microsoft is 1.54 times less risky than Catalyst Pharmaceuticals. It trades about 0.35 of its potential returns per unit of risk. Catalyst Pharmaceuticals is currently generating about -0.12 per unit of risk. If you would invest  39,454  in Microsoft on April 30, 2025 and sell it today you would earn a total of  11,803  from holding Microsoft or generate 29.92% return on investment over 90 days.

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

Microsoft  vs.  Catalyst Pharmaceuticals

Microsoft

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, Microsoft unveiled solid returns over the last few months and may actually be approaching a breakup point.

Catalyst Pharmaceuticals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Catalyst Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in August 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Microsoft and Catalyst Pharmaceuticals

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

The idea behind Microsoft and Catalyst Pharmaceuticals 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.