Correlation Between Target and Microsoft

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

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

Diversification Opportunities for Target and Microsoft

0.46

Correlation Coefficient

Target  Microsoft

Very weak diversification

The 3 months correlation between Target and Microsoft is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Target and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and Target 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 Target are associated (or correlated) with Microsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft has no effect on the direction of Target i.e., Target and Microsoft go up and down completely randomly.

Pair Corralation between Target and Microsoft

Assuming the 90 days trading horizon Target is expected to generate 2.52 times less return on investment than Microsoft. In addition to that, Target is 1.78 times more volatile than Microsoft. It trades about 0.08 of its total potential returns per unit of risk. Microsoft is currently generating about 0.38 per unit of volatility. If you would invest  8,866  in Microsoft on April 23, 2025 and sell it today you would earn a total of  3,009  from holding Microsoft or generate 33.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

Target  vs.  Microsoft

Target

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Target are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Target may actually be approaching a critical reversion point that can send shares even higher in August 2025.

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 technical and fundamental indicators, Microsoft sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Target and Microsoft

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

The idea behind Target and Microsoft 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.