Correlation Between Microsoft and Champlain Small

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

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

Diversification Opportunities for Microsoft and Champlain Small

0.33

Correlation Coefficient

Microsoft  Champlain Small

Weak diversification

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

Pair Corralation between Microsoft and Champlain Small

Given the investment horizon of 90 days Microsoft is expected to generate 0.71 times more return on investment than Champlain Small. However, Microsoft is 1.41 times less risky than Champlain Small. It trades about 0.39 of its potential returns per unit of risk. Champlain Small is currently generating about 0.13 per unit of risk. If you would invest  42,462  in Microsoft on May 1, 2025 and sell it today you would earn a total of  8,795  from holding Microsoft or generate 20.71% return on investment over 90 days.

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

Microsoft  vs.  Champlain Small

Microsoft

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 30 (%) 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.

Champlain Small

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Champlain Small are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Champlain Small may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with Microsoft and Champlain Small

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

The idea behind Microsoft and Champlain Small 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.

Check out your portfolio center.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.