Correlation Between Microsoft and FedEx Corp

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

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

Diversification Opportunities for Microsoft and FedEx Corp

0.61

Correlation Coefficient

Microsoft  FedEx Corp

Poor diversification

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

Pair Corralation between Microsoft and FedEx Corp

Assuming the 90 days trading horizon Microsoft is expected to generate 1.55 times less return on investment than FedEx Corp. But when comparing it to its historical volatility, Microsoft is 1.5 times less risky than FedEx Corp. It trades about 0.09 of its potential returns per unit of risk. FedEx Corp is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  23,596  in FedEx Corp on October 9, 2024 and sell it today you would earn a total of  2,654  from holding FedEx Corp or generate 11.25% return on investment over 90 days.

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

Microsoft  vs.  FedEx Corp

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 fragile basic indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in February 2025.

FedEx Corp

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in FedEx Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, FedEx Corp exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and FedEx Corp

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

The idea behind Microsoft and FedEx Corp 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.