Correlation Between Microsoft and Standard

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

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

Diversification Opportunities for Microsoft and Standard

0.94

Correlation Coefficient

Microsoft  Standard

Almost no diversification

The 3 months correlation between Microsoft and Standard is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Standard Motor Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Standard Motor Products 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 Standard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Standard Motor Products has no effect on the direction of Microsoft i.e., Microsoft and Standard go up and down completely randomly.

Pair Corralation between Microsoft and Standard

Given the investment horizon of 90 days Microsoft is expected to generate 0.45 times more return on investment than Standard. However, Microsoft is 2.24 times less risky than Standard. It trades about 0.39 of its potential returns per unit of risk. Standard Motor Products is currently generating about 0.15 per unit of risk. If you would invest  42,462  in Microsoft on May 1, 2025 and sell it today you would earn a total of  8,795  from holding Microsoft or generate 20.71% return on investment over 90 days.

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

Microsoft  vs.  Standard Motor Products

Microsoft

Risk-Adjusted Performance

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. 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.

Standard Motor Products

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Standard Motor Products are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating primary indicators, Standard reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Standard

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

The idea behind Microsoft and Standard Motor Products 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.