Correlation Between Microsoft and US Foods

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

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

Diversification Opportunities for Microsoft and US Foods

0.61

Correlation Coefficient

Microsoft  US Foods

Poor diversification

The 3 months correlation between Microsoft and UFH is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and US Foods Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Foods Holding 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 US Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Foods Holding has no effect on the direction of Microsoft i.e., Microsoft and US Foods go up and down completely randomly.

Pair Corralation between Microsoft and US Foods

Assuming the 90 days trading horizon Microsoft is expected to under-perform the US Foods. In addition to that, Microsoft is 1.2 times more volatile than US Foods Holding. It trades about -0.16 of its total potential returns per unit of risk. US Foods Holding is currently generating about -0.11 per unit of volatility. If you would invest  6,450  in US Foods Holding on December 22, 2024 and sell it today you would lose (600.00) from holding US Foods Holding or give up 9.3% of portfolio value over 90 days.

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

Microsoft  vs.  US Foods Holding

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 uncertain performance in the last few months, the Stock's technical and fundamental indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

US Foods Holding

Risk-Adjusted Performance

Very Weak

Over the last 90 days US Foods Holding has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic 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 Microsoft and US Foods

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

The idea behind Microsoft and US Foods Holding 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.