Correlation Between Microsoft Corp and Adobe Systems

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Can any of the company-specific risk be diversified away by investing in both Microsoft Corp and Adobe Systems 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 Corp and Adobe Systems into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft Corp and Adobe Systems, you can compare the effects of market volatilities on Microsoft Corp and Adobe Systems 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 Corp with a short position of Adobe Systems. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft Corp and Adobe Systems.

Diversification Opportunities for Microsoft Corp and Adobe Systems

0.82
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Microsoft and Adobe is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft Corp and Adobe Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adobe Systems and Microsoft Corp 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 Corp are associated (or correlated) with Adobe Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adobe Systems has no effect on the direction of Microsoft Corp i.e., Microsoft Corp and Adobe Systems go up and down completely randomly.

Pair Corralation between Microsoft Corp and Adobe Systems

Given the investment horizon of 90 days Microsoft Corp is expected to generate 51.0 times less return on investment than Adobe Systems. But when comparing it to its historical volatility, Microsoft Corp is 1.22 times less risky than Adobe Systems. It trades about 0.0 of its potential returns per unit of risk. Adobe Systems is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  45,333  in Adobe Systems on May 17, 2022 and sell it today you would lose (231.00)  from holding Adobe Systems or give up 0.51% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Microsoft Corp  vs.  Adobe Systems

 Performance (%) 
       Timeline  
Microsoft Corp 
Microsoft Performance
6 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, Microsoft Corp may actually be approaching a critical reversion point that can send shares even higher in September 2022.

Microsoft Price Channel

Adobe Systems 
Adobe Performance
5 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Adobe Systems are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental drivers, Adobe Systems may actually be approaching a critical reversion point that can send shares even higher in September 2022.

Adobe Price Channel

Microsoft Corp and Adobe Systems Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Microsoft Corp and Adobe Systems

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

Microsoft Corp

Pair trading matchups for Microsoft Corp

Ford vs. Microsoft Corp
Graphic Packaging vs. Microsoft Corp
Aspen Technology vs. Microsoft Corp
Walker Dunlop vs. Microsoft Corp
Oracle vs. Microsoft Corp
Skyworks Solutions vs. Microsoft Corp
Sentinelone Inc vs. Microsoft Corp
Visa vs. Microsoft Corp
Dupont Denemours vs. Microsoft Corp
Tenneco Automotive vs. Microsoft Corp
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Microsoft Corp as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Microsoft Corp's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Microsoft Corp's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Microsoft Corp.
The idea behind Microsoft Corp and Adobe Systems 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.

Adobe Systems

Pair trading matchups for Adobe Systems

United Rentals vs. Adobe Systems
Tenneco Automotive vs. Adobe Systems
Ford vs. Adobe Systems
Equinix vs. Adobe Systems
Walker Dunlop vs. Adobe Systems
Graphic Packaging vs. Adobe Systems
Vmware vs. Adobe Systems
Aspen Technology vs. Adobe Systems
Skyworks Solutions vs. Adobe Systems
Salesforce vs. Adobe Systems
Dupont Denemours vs. Adobe Systems
Visa vs. Adobe Systems
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Adobe Systems as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Adobe Systems' systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Adobe Systems' unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Adobe Systems.
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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.

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