Correlation Between Microsoft and DexCom

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

By analyzing existing cross correlation between Microsoft and DexCom Inc, you can compare the effects of market volatilities on Microsoft and DexCom 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 DexCom. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and DexCom.

Diversification Opportunities for Microsoft and DexCom

0.83

Correlation Coefficient

Microsoft  DexCom

Very poor diversification

The 3 months correlation between Microsoft and DexCom is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and DexCom Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DexCom Inc 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 DexCom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DexCom Inc has no effect on the direction of Microsoft i.e., Microsoft and DexCom go up and down completely randomly.

Pair Corralation between Microsoft and DexCom

Assuming the 90 days trading horizon Microsoft is expected to under-perform the DexCom. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 2.23 times less risky than DexCom. The stock trades about -0.2 of its potential returns per unit of risk. The DexCom Inc is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  7,353  in DexCom Inc on October 10, 2024 and sell it today you would earn a total of  483.00  from holding DexCom Inc or generate 6.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	94.44%
Values	Daily Returns

Microsoft  vs.  DexCom Inc

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 comparatively unsteady technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in February 2025.

DexCom Inc

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in DexCom Inc are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, DexCom unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and DexCom

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

The idea behind Microsoft and DexCom Inc 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.