Correlation Between Microsoft Corp and Alphabet

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

By analyzing existing cross correlation between Microsoft Corp CDR and Alphabet Inc CDR, you can compare the effects of market volatilities on Microsoft Corp and Alphabet 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 Corp with a short position of Alphabet. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft Corp and Alphabet.

Diversification Opportunities for Microsoft Corp and Alphabet

0.85

Correlation Coefficient

Microsoft Corp  Alphabet

Very poor diversification

The 3 months correlation between Microsoft and Alphabet is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft Corp CDR and Alphabet Inc CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alphabet CDR and Microsoft Corp 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 Corp CDR are associated (or correlated) with Alphabet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alphabet CDR has no effect on the direction of Microsoft Corp i.e., Microsoft Corp and Alphabet go up and down completely randomly.

Pair Corralation between Microsoft Corp and Alphabet

Assuming the 90 days trading horizon Microsoft Corp CDR is expected to generate 0.81 times more return on investment than Alphabet. However, Microsoft Corp CDR is 1.24 times less risky than Alphabet. It trades about 0.4 of its potential returns per unit of risk. Alphabet Inc CDR is currently generating about 0.2 per unit of risk. If you would invest  2,601  in Microsoft Corp CDR on April 20, 2025 and sell it today you would earn a total of  1,074  from holding Microsoft Corp CDR or generate 41.29% return on investment over 90 days.

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

Microsoft Corp CDR  vs.  Alphabet Inc CDR

Microsoft Corp CDR

Risk-Adjusted Performance

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft Corp CDR are ranked lower than 31 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Microsoft Corp exhibited solid returns over the last few months and may actually be approaching a breakup point.

Alphabet CDR

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc CDR are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical and fundamental indicators, Alphabet exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft Corp and Alphabet

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

The idea behind Microsoft Corp CDR and Alphabet Inc CDR 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..