Correlation Between Microsoft and Tree Island

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

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

Diversification Opportunities for Microsoft and Tree Island

-0.02

Correlation Coefficient

Microsoft  Tree Island

Good diversification

The 3 months correlation between Microsoft and Tree is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Tree Island Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tree Island Steel 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 Tree Island. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tree Island Steel has no effect on the direction of Microsoft i.e., Microsoft and Tree Island go up and down completely randomly.

Pair Corralation between Microsoft and Tree Island

Given the investment horizon of 90 days Microsoft is expected to generate 0.69 times more return on investment than Tree Island. However, Microsoft is 1.44 times less risky than Tree Island. It trades about 0.26 of its potential returns per unit of risk. Tree Island Steel is currently generating about 0.0 per unit of risk. If you would invest  44,844  in Microsoft on May 10, 2025 and sell it today you would earn a total of  7,360  from holding Microsoft or generate 16.41% return on investment over 90 days.

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

Microsoft  vs.  Tree Island Steel

Microsoft

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 20 (%) 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.

Tree Island Steel

Risk-Adjusted Performance

Weakest

Over the last 90 days Tree Island Steel has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy essential indicators, Tree Island is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Microsoft and Tree Island

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

The idea behind Microsoft and Tree Island Steel 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.