Correlation Between Microsoft and Exxon

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

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

Diversification Opportunities for Microsoft and Exxon

0.69

Correlation Coefficient

Microsoft  Exxon

Poor diversification

The 3 months correlation between Microsoft and Exxon is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Exxon Mobil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Exxon Mobil 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 Exxon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Exxon Mobil has no effect on the direction of Microsoft i.e., Microsoft and Exxon go up and down completely randomly.

Pair Corralation between Microsoft and Exxon

Assuming the 90 days trading horizon Microsoft is expected to generate 1.32 times more return on investment than Exxon. However, Microsoft is 1.32 times more volatile than Exxon Mobil. It trades about 0.38 of its potential returns per unit of risk. Exxon Mobil is currently generating about 0.17 per unit of risk. If you would invest  1,355,000  in Microsoft on April 21, 2025 and sell it today you would earn a total of  847,500  from holding Microsoft or generate 62.55% return on investment over 90 days.

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

Microsoft  vs.  Exxon Mobil

Microsoft

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 29 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Microsoft sustained solid returns over the last few months and may actually be approaching a breakup point.

Exxon Mobil

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Exxon Mobil are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak primary indicators, Exxon sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Exxon

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

The idea behind Microsoft and Exxon Mobil 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.