Correlation Between Adobe Systems and Microsoft

Can any of the company-specific risk be diversified away by investing in both Adobe Systems and Microsoft 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 Adobe Systems and Microsoft into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Adobe Systems Incorporated and Microsoft, you can compare the effects of market volatilities on Adobe Systems and Microsoft 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 Adobe Systems with a short position of Microsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of Adobe Systems and Microsoft.

Diversification Opportunities for Adobe Systems and Microsoft

0.44

Correlation Coefficient

Adobe Systems  Microsoft

Very weak diversification

The 3 months correlation between Adobe and Microsoft is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Adobe Systems Incorporated and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and Adobe Systems 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 Adobe Systems Incorporated are associated (or correlated) with Microsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft has no effect on the direction of Adobe Systems i.e., Adobe Systems and Microsoft go up and down completely randomly.

Pair Corralation between Adobe Systems and Microsoft

Given the investment horizon of 90 days Adobe Systems Incorporated is expected to under-perform the Microsoft. In addition to that, Adobe Systems is 1.45 times more volatile than Microsoft. It trades about -0.09 of its total potential returns per unit of risk. Microsoft is currently generating about -0.11 per unit of volatility. If you would invest  42,398  in Microsoft on December 30, 2024 and sell it today you would lose (4,518) from holding Microsoft or give up 10.66% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Adobe Systems Incorporated  vs.  Microsoft

Adobe Systems

Risk-Adjusted Performance

Very Weak

Over the last 90 days Adobe Systems Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's fundamental drivers remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Microsoft

Risk-Adjusted Performance

Very Weak

Over the last 90 days Microsoft has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal 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.

Pair Trading with Adobe Systems and Microsoft

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

The idea behind Adobe Systems Incorporated and Microsoft 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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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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.