Correlation Between Microsoft and SPDR Series

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

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

Diversification Opportunities for Microsoft and SPDR Series

0.22

Correlation Coefficient

Microsoft  SPDR Series

Modest diversification

The 3 months correlation between Microsoft and SPDR is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and SPDR Series Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Series Trust 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 Series. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Series Trust has no effect on the direction of Microsoft i.e., Microsoft and SPDR Series go up and down completely randomly.

Pair Corralation between Microsoft and SPDR Series

Given the investment horizon of 90 days Microsoft is expected to generate 0.77 times more return on investment than SPDR Series. However, Microsoft is 1.3 times less risky than SPDR Series. It trades about 0.08 of its potential returns per unit of risk. SPDR Series Trust is currently generating about 0.02 per unit of risk. If you would invest  26,324  in Microsoft on September 29, 2024 and sell it today you would earn a total of  16,729  from holding Microsoft or generate 63.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.79%
Values	Daily Returns

Microsoft  vs.  SPDR Series Trust

Microsoft

Risk-Adjusted Performance

0 of 100

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 comparatively stable technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

SPDR Series Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR Series Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward indicators, SPDR Series is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Microsoft and SPDR Series

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

The idea behind Microsoft and SPDR Series Trust 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .