Correlation Between Microsoft and Equinix

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

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

Diversification Opportunities for Microsoft and Equinix

0.09

Correlation Coefficient

Microsoft  Equinix

Significant diversification

The 3 months correlation between Microsoft and Equinix is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Equinix in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equinix 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 Equinix. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equinix has no effect on the direction of Microsoft i.e., Microsoft and Equinix go up and down completely randomly.

Pair Corralation between Microsoft and Equinix

Given the investment horizon of 90 days Microsoft is expected to generate 1.11 times more return on investment than Equinix. However, Microsoft is 1.11 times more volatile than Equinix. It trades about -0.07 of its potential returns per unit of risk. Equinix is currently generating about -0.36 per unit of risk. If you would invest  41,788  in Microsoft on February 4, 2024 and sell it today you would lose (1,122) from holding Microsoft or give up 2.68% of portfolio value over 90 days.

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

Microsoft  vs.  Equinix

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 latest stock price uproar, may contribute to short-horizon losses for the private investors.

Equinix

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Equinix has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in June 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Microsoft and Equinix

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

The idea behind Microsoft and Equinix 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 .