Correlation Between Microsoft and JM Smucker

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

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

Diversification Opportunities for Microsoft and JM Smucker

0.22

Correlation Coefficient

Microsoft  JM Smucker

Modest diversification

The 3 months correlation between Microsoft and SJM is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and JM Smucker in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JM Smucker 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 JM Smucker. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JM Smucker has no effect on the direction of Microsoft i.e., Microsoft and JM Smucker go up and down completely randomly.

Pair Corralation between Microsoft and JM Smucker

Given the investment horizon of 90 days Microsoft is expected to generate 0.85 times more return on investment than JM Smucker. However, Microsoft is 1.17 times less risky than JM Smucker. It trades about 0.09 of its potential returns per unit of risk. JM Smucker is currently generating about 0.03 per unit of risk. If you would invest  36,917  in Microsoft on February 15, 2024 and sell it today you would earn a total of  4,739  from holding Microsoft or generate 12.84% return on investment over 90 days.

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

Microsoft  vs.  JM Smucker

Microsoft

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

JM Smucker

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days JM Smucker has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's forward-looking indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Microsoft and JM Smucker

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

The idea behind Microsoft and JM Smucker 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.