Correlation Between Microsoft and Advanced Micro

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

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

Diversification Opportunities for Microsoft and Advanced Micro

0.92

Correlation Coefficient

Microsoft  Advanced Micro

Almost no diversification

The 3 months correlation between Microsoft and Advanced is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Advanced Micro Devices in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advanced Micro Devices 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 Advanced Micro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advanced Micro Devices has no effect on the direction of Microsoft i.e., Microsoft and Advanced Micro go up and down completely randomly.

Pair Corralation between Microsoft and Advanced Micro

Given the investment horizon of 90 days Microsoft is expected to generate 1.97 times less return on investment than Advanced Micro. But when comparing it to its historical volatility, Microsoft is 2.08 times less risky than Advanced Micro. It trades about 0.35 of its potential returns per unit of risk. Advanced Micro Devices is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest  9,665  in Advanced Micro Devices on April 25, 2025 and sell it today you would earn a total of  6,200  from holding Advanced Micro Devices or generate 64.15% return on investment over 90 days.

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

Microsoft  vs.  Advanced Micro Devices

Microsoft

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, Microsoft unveiled solid returns over the last few months and may actually be approaching a breakup point.

Advanced Micro Devices

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Advanced Micro Devices are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating primary indicators, Advanced Micro exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Advanced Micro

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

The idea behind Microsoft and Advanced Micro Devices 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.