Correlation Between Microsoft and SXP
Can any of the company-specific risk be diversified away by investing in both Microsoft and SXP 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 SXP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and SXP, you can compare the effects of market volatilities on Microsoft and SXP 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 SXP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and SXP.
Diversification Opportunities for Microsoft and SXP
Average diversification
The 3 months correlation between Microsoft and SXP is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and SXP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SXP 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 SXP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SXP has no effect on the direction of Microsoft i.e., Microsoft and SXP go up and down completely randomly.
Pair Corralation between Microsoft and SXP
Given the investment horizon of 90 days Microsoft is expected to generate 24.15 times less return on investment than SXP. But when comparing it to its historical volatility, Microsoft is 7.45 times less risky than SXP. It trades about 0.05 of its potential returns per unit of risk. SXP is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest 19.00 in SXP on August 31, 2024 and sell it today you would earn a total of 20.00 from holding SXP or generate 105.26% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 98.44% |
| Values | Daily Returns |
Microsoft vs. SXP
Performance |
| Timeline |
| Microsoft |
| SXP |
Microsoft and SXP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and SXP
The main advantage of trading using opposite Microsoft and SXP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, SXP 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 SXP will offset losses from the drop in SXP's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
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