Correlation Between Microsoft and Danaher

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

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

Diversification Opportunities for Microsoft and Danaher

0.78

Correlation Coefficient

Microsoft  Danaher

Poor diversification

The 3 months correlation between Microsoft and Danaher is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Danaher in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Danaher 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 Danaher. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Danaher has no effect on the direction of Microsoft i.e., Microsoft and Danaher go up and down completely randomly.

Pair Corralation between Microsoft and Danaher

Given the investment horizon of 90 days Microsoft is expected to under-perform the Danaher. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.13 times less risky than Danaher. The stock trades about -0.11 of its potential returns per unit of risk. The Danaher is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  22,930  in Danaher on December 29, 2024 and sell it today you would lose (2,345) from holding Danaher or give up 10.23% of portfolio value over 90 days.

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

Microsoft  vs.  Danaher

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 latest abnormal performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Danaher

Risk-Adjusted Performance

Very Weak

Over the last 90 days Danaher has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's technical indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Microsoft and Danaher

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

The idea behind Microsoft and Danaher 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.