Correlation Between Microsoft and SPDR MSCI

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

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

Diversification Opportunities for Microsoft and SPDR MSCI

-0.69

Correlation Coefficient

Microsoft  SPDR MSCI

Excellent diversification

The 3 months correlation between Microsoft and SPDR is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and SPDR MSCI Europe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR MSCI Europe 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 SPDR MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR MSCI Europe has no effect on the direction of Microsoft i.e., Microsoft and SPDR MSCI go up and down completely randomly.

Pair Corralation between Microsoft and SPDR MSCI

Given the investment horizon of 90 days Microsoft is expected to under-perform the SPDR MSCI. In addition to that, Microsoft is 2.6 times more volatile than SPDR MSCI Europe. It trades about -0.09 of its total potential returns per unit of risk. SPDR MSCI Europe is currently generating about 0.39 per unit of volatility. If you would invest  30,590  in SPDR MSCI Europe on November 30, 2024 and sell it today you would earn a total of  3,375  from holding SPDR MSCI Europe or generate 11.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	93.18%
Values	Daily Returns

Microsoft  vs.  SPDR MSCI Europe

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.

SPDR MSCI Europe

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR MSCI Europe are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, SPDR MSCI may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Microsoft and SPDR MSCI

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

The idea behind Microsoft and SPDR MSCI Europe 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.