Correlation Between Microsoft and Alarm Holdings

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

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

Diversification Opportunities for Microsoft and Alarm Holdings

-0.33

Correlation Coefficient

Microsoft  Alarm Holdings

Very good diversification

The 3 months correlation between Microsoft and Alarm is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Alarm Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alarm Holdings 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 Alarm Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alarm Holdings has no effect on the direction of Microsoft i.e., Microsoft and Alarm Holdings go up and down completely randomly.

Pair Corralation between Microsoft and Alarm Holdings

Given the investment horizon of 90 days Microsoft is expected to generate 0.61 times more return on investment than Alarm Holdings. However, Microsoft is 1.65 times less risky than Alarm Holdings. It trades about 0.06 of its potential returns per unit of risk. Alarm Holdings is currently generating about -0.06 per unit of risk. If you would invest  49,690  in Microsoft on July 6, 2025 and sell it today you would earn a total of  1,884  from holding Microsoft or generate 3.79% return on investment over 90 days.

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

Microsoft  vs.  Alarm Holdings

Microsoft

Risk-Adjusted Performance

Soft

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. 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.

Alarm Holdings

Risk-Adjusted Performance

Weakest

Over the last 90 days Alarm Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Microsoft and Alarm Holdings

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

The idea behind Microsoft and Alarm Holdings 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..