Correlation Between Microsoft Corp and SP 500

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Can any of the company-specific risk be diversified away by investing in both Microsoft Corp 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 Corp 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 Corp and SP 500 Utilities, you can compare the effects of market volatilities on Microsoft Corp 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 Corp with a short position of SP 500. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft Corp and SP 500.

Diversification Opportunities for Microsoft Corp and SP 500

0.56
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Microsoft and SP 500 is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft Corp and SP 500 Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SP 500 Utilities 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 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 Utilities has no effect on the direction of Microsoft Corp i.e., Microsoft Corp and SP 500 go up and down completely randomly.

Pair Corralation between Microsoft Corp and SP 500

Given the investment horizon of 90 days Microsoft Corp is expected to generate 1.07 times more return on investment than SP 500. However, Microsoft Corp is 1.07 times more volatile than SP 500 Utilities. It trades about -0.23 of its potential returns per unit of risk. SP 500 Utilities is currently generating about -0.39 per unit of risk. If you would invest  25,325  in Microsoft Corp on July 5, 2022 and sell it today you would lose (2,035)  from holding Microsoft Corp or give up 8.04% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Microsoft Corp  vs.  SP 500 Utilities

 Performance (%) 
       Timeline  
Microsoft Corp 
Microsoft Performance
0 of 100
Over the last 90 days Microsoft Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Microsoft Price Channel

SP 500 Utilities 
SP 500 Performance
0 of 100
Over the last 90 days SP 500 Utilities has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable essential indicators, SP 500 is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

SP 500 Price Channel

Microsoft Corp and SP 500 Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Microsoft Corp and SP 500

The main advantage of trading using opposite Microsoft Corp and SP 500 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft Corp 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.
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The idea behind Microsoft Corp and SP 500 Utilities 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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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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.

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