Correlation Between Exxon and Microsoft Corp

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

Diversification Opportunities for Exxon and Microsoft Corp

-0.5
  Correlation Coefficient

Very good diversification

The 3 months correlation between Exxon and Microsoft is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Exxon Mobil Corp and Microsoft Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft Corp and Exxon 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 Exxon Mobil Corp are associated (or correlated) with Microsoft Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft Corp has no effect on the direction of Exxon i.e., Exxon and Microsoft Corp go up and down completely randomly.

Pair Corralation between Exxon and Microsoft Corp

Considering the 90-day investment horizon Exxon Mobil Corp is expected to under-perform the Microsoft Corp. In addition to that, Exxon is 1.41 times more volatile than Microsoft Corp. It trades about -0.17 of its total potential returns per unit of risk. Microsoft Corp is currently generating about -0.07 per unit of volatility. If you would invest  27,002  in Microsoft Corp on April 4, 2022 and sell it today you would lose (1,044)  from holding Microsoft Corp or give up 3.87% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Exxon Mobil Corp  vs.  Microsoft Corp

 Performance (%) 
      Timeline 
Exxon Mobil Corp 
Exxon Performance
3 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Exxon Mobil Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Exxon may actually be approaching a critical reversion point that can send shares even higher in August 2022.

Structure and Payout Changes

Forward Annual Dividend Yield
0.0402
Payout Ratio
0.52
Last Split Factor
2:1
Forward Annual Dividend Rate
3.52
Dividend Date
2022-06-10
Ex Dividend Date
2022-05-12
Last Split Date
2001-07-19

Exxon Price Channel

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 fragile performance in the last few months, the Stock's technical and fundamental indicators remain comparatively stable which may send shares a bit higher in August 2022. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Structure and Payout Changes

Forward Annual Dividend Yield
0.0096
Payout Ratio
0.26
Last Split Factor
2:1
Forward Annual Dividend Rate
2.48
Dividend Date
2022-06-09
Ex Dividend Date
2022-08-17
Last Split Date
2003-02-18

Microsoft Price Channel

Exxon and Microsoft Corp Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with Exxon and Microsoft Corp

The main advantage of trading using opposite Exxon and Microsoft Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Exxon position performs unexpectedly, Microsoft Corp 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 Microsoft Corp will offset losses from the drop in Microsoft Corp's long position.
The idea behind Exxon Mobil Corp and Microsoft Corp 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.
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 Global Correlations module to find global opportunities by holding instruments from different markets.

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