Correlation Between Microsoft and SPDR SP
Can any of the company-specific risk be diversified away by investing in both Microsoft and SPDR SP 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 SPDR SP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and SPDR SP 500, you can compare the effects of market volatilities on Microsoft and SPDR SP 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 SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and SPDR SP.
Diversification Opportunities for Microsoft and SPDR SP
Significant diversification
The 3 months correlation between Microsoft and SPDR is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and SPDR SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP 500 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 SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP 500 has no effect on the direction of Microsoft i.e., Microsoft and SPDR SP go up and down completely randomly.
Pair Corralation between Microsoft and SPDR SP
Given the investment horizon of 90 days Microsoft is expected to under-perform the SPDR SP. In addition to that, Microsoft is 1.42 times more volatile than SPDR SP 500. It trades about -0.04 of its total potential returns per unit of risk. SPDR SP 500 is currently generating about 0.25 per unit of volatility. If you would invest 53,880 in SPDR SP 500 on August 28, 2024 and sell it today you would earn a total of 3,300 from holding SPDR SP 500 or generate 6.12% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Microsoft vs. SPDR SP 500
Performance |
| Timeline |
| Microsoft |
| SPDR SP 500 |
Microsoft and SPDR SP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and SPDR SP
The main advantage of trading using opposite Microsoft and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, SPDR SP 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 SPDR SP will offset losses from the drop in SPDR SP's long position.| Microsoft vs. GigaCloud Technology Class | Microsoft vs. Arqit Quantum | Microsoft vs. Cemtrex | Microsoft vs. Paysafe |
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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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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