Correlation Between Meta Platforms and Microsoft Corp

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

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

Diversification Opportunities for Meta Platforms and Microsoft Corp

-0.54

Correlation Coefficient

Meta Platforms  Microsoft Corp

Excellent diversification

The 3 months correlation between Meta and Microsoft is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Meta Platforms CDR and Microsoft Corp CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft Corp CDR and Meta Platforms 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 Meta Platforms CDR 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 CDR has no effect on the direction of Meta Platforms i.e., Meta Platforms and Microsoft Corp go up and down completely randomly.

Pair Corralation between Meta Platforms and Microsoft Corp

Assuming the 90 days trading horizon Meta Platforms CDR is expected to generate 1.2 times more return on investment than Microsoft Corp. However, Meta Platforms is 1.2 times more volatile than Microsoft Corp CDR. It trades about 0.12 of its potential returns per unit of risk. Microsoft Corp CDR is currently generating about -0.09 per unit of risk. If you would invest  3,284  in Meta Platforms CDR on December 1, 2024 and sell it today you would earn a total of  404.00  from holding Meta Platforms CDR or generate 12.3% return on investment over 90 days.

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

Meta Platforms CDR  vs.  Microsoft Corp CDR

Meta Platforms CDR

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Meta Platforms CDR are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical and fundamental indicators, Meta Platforms exhibited solid returns over the last few months and may actually be approaching a breakup point.

Microsoft Corp CDR

Risk-Adjusted Performance

Very Weak

Over the last 90 days Microsoft Corp CDR 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 sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Meta Platforms and Microsoft Corp

The main advantage of trading using opposite Meta Platforms and Microsoft Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Meta Platforms 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 Meta Platforms CDR and Microsoft Corp CDR 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.