Correlation Between Microsoft and Smallcap Fund

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

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

Diversification Opportunities for Microsoft and Smallcap Fund

0.48

Correlation Coefficient

Microsoft  Smallcap Fund

Very weak diversification

The 3 months correlation between Microsoft and Smallcap is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Smallcap Fund Fka in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smallcap Fund Fka 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 Smallcap Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smallcap Fund Fka has no effect on the direction of Microsoft i.e., Microsoft and Smallcap Fund go up and down completely randomly.

Pair Corralation between Microsoft and Smallcap Fund

Given the investment horizon of 90 days Microsoft is expected to generate 1.29 times more return on investment than Smallcap Fund. However, Microsoft is 1.29 times more volatile than Smallcap Fund Fka. It trades about -0.12 of its potential returns per unit of risk. Smallcap Fund Fka is currently generating about -0.19 per unit of risk. If you would invest  43,654  in Microsoft on December 4, 2024 and sell it today you would lose (4,805) from holding Microsoft or give up 11.01% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.33%
Values	Daily Returns

Microsoft  vs.  Smallcap Fund Fka

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.

Smallcap Fund Fka

Risk-Adjusted Performance

Very Weak

Over the last 90 days Smallcap Fund Fka has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Microsoft and Smallcap Fund

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

The idea behind Microsoft and Smallcap Fund Fka 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.