Correlation Between Microsoft and Intrepid Potash

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

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

Diversification Opportunities for Microsoft and Intrepid Potash

0.01

Correlation Coefficient

Microsoft  Intrepid Potash

Significant diversification

The 3 months correlation between Microsoft and Intrepid is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Intrepid Potash in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Intrepid Potash 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 Intrepid Potash. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Intrepid Potash has no effect on the direction of Microsoft i.e., Microsoft and Intrepid Potash go up and down completely randomly.

Pair Corralation between Microsoft and Intrepid Potash

Given the investment horizon of 90 days Microsoft is expected to generate 0.23 times more return on investment than Intrepid Potash. However, Microsoft is 4.33 times less risky than Intrepid Potash. It trades about 0.36 of its potential returns per unit of risk. Intrepid Potash is currently generating about 0.02 per unit of risk. If you would invest  43,448  in Microsoft on May 2, 2025 and sell it today you would earn a total of  7,876  from holding Microsoft or generate 18.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Microsoft  vs.  Intrepid Potash

Microsoft

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 28 (%) 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.

Intrepid Potash

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Intrepid Potash are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Intrepid Potash is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Microsoft and Intrepid Potash

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

The idea behind Microsoft and Intrepid Potash 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.