Correlation Between Microsoft and Sp 500
Can any of the company-specific risk be diversified away by investing in both Microsoft and Sp 500 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 Sp 500 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Sp 500 Equal, you can compare the effects of market volatilities on Microsoft and Sp 500 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 Sp 500. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Sp 500.
Diversification Opportunities for Microsoft and Sp 500
Modest diversification
The 3 months correlation between Microsoft and INDEX is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Sp 500 Equal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sp 500 Equal 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 Sp 500. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sp 500 Equal has no effect on the direction of Microsoft i.e., Microsoft and Sp 500 go up and down completely randomly.
Pair Corralation between Microsoft and Sp 500
Given the investment horizon of 90 days Microsoft is expected to generate 2.37 times less return on investment than Sp 500. In addition to that, Microsoft is 1.59 times more volatile than Sp 500 Equal. It trades about 0.04 of its total potential returns per unit of risk. Sp 500 Equal is currently generating about 0.15 per unit of volatility. If you would invest 4,299 in Sp 500 Equal on August 25, 2024 and sell it today you would earn a total of 1,402 from holding Sp 500 Equal or generate 32.61% 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. Sp 500 Equal
Performance |
| Timeline |
| Microsoft |
| Sp 500 Equal |
Microsoft and Sp 500 Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Sp 500
The main advantage of trading using opposite Microsoft and Sp 500 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Sp 500 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 Sp 500 will offset losses from the drop in Sp 500's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Sp 500 vs. Fidelity Total Market | Sp 500 vs. Fidelity Extended Market | Sp 500 vs. Fidelity Zero Total | Sp 500 vs. Fidelity Small Cap |
Check out your portfolio center.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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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