Correlation Between Microsoft and Advanced Micro

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

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

Diversification Opportunities for Microsoft and Advanced Micro

-0.66

Correlation Coefficient

Microsoft  Advanced Micro

Excellent diversification

The 3 months correlation between Microsoft and Advanced is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Advanced Micro Devices in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advanced Micro Devices and Microsoft 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 are associated (or correlated) with Advanced Micro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advanced Micro Devices has no effect on the direction of Microsoft i.e., Microsoft and Advanced Micro go up and down completely randomly.

Pair Corralation between Microsoft and Advanced Micro

Assuming the 90 days trading horizon Microsoft is expected to generate 0.49 times more return on investment than Advanced Micro. However, Microsoft is 2.04 times less risky than Advanced Micro. It trades about 0.09 of its potential returns per unit of risk. Advanced Micro Devices is currently generating about 0.04 per unit of risk. If you would invest  23,750  in Microsoft on October 25, 2024 and sell it today you would earn a total of  18,595  from holding Microsoft or generate 78.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.8%
Values	Daily Returns

Microsoft  vs.  Advanced Micro Devices

Microsoft

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Advanced Micro Devices

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Advanced Micro Devices 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 basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Microsoft and Advanced Micro

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

The idea behind Microsoft and Advanced Micro Devices 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.