Correlation Between Microsoft and Value Equity

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

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

Diversification Opportunities for Microsoft and Value Equity

0.07

Correlation Coefficient

Microsoft  Value Equity

Significant diversification

The 3 months correlation between Microsoft and Value is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Value Equity Investor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Value Equity Investor 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 Value Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Value Equity Investor has no effect on the direction of Microsoft i.e., Microsoft and Value Equity go up and down completely randomly.

Pair Corralation between Microsoft and Value Equity

Given the investment horizon of 90 days Microsoft is expected to generate 0.82 times more return on investment than Value Equity. However, Microsoft is 1.22 times less risky than Value Equity. It trades about -0.02 of its potential returns per unit of risk. Value Equity Investor is currently generating about -0.06 per unit of risk. If you would invest  49,944  in Microsoft on September 10, 2025 and sell it today you would lose (842.00) from holding Microsoft or give up 1.69% of portfolio value over 90 days.

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

Microsoft  vs.  Value Equity Investor

Microsoft

Risk-Adjusted Performance

Weakest

Over the last 90 days Microsoft has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Value Equity Investor

Risk-Adjusted Performance

Weakest

Over the last 90 days Value Equity Investor has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Value Equity is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Microsoft and Value Equity

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

The idea behind Microsoft and Value Equity Investor 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 CEOs Directory module to screen CEOs from public companies around the world.