Correlation Between Microsoft and DMY Squared

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

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

Diversification Opportunities for Microsoft and DMY Squared

-0.04

Correlation Coefficient

Microsoft  DMY Squared

Good diversification

The 3 months correlation between Microsoft and DMY is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and dMY Squared Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on dMY Squared Technology 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 DMY Squared. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of dMY Squared Technology has no effect on the direction of Microsoft i.e., Microsoft and DMY Squared go up and down completely randomly.

Pair Corralation between Microsoft and DMY Squared

Given the investment horizon of 90 days Microsoft is expected to generate 0.27 times more return on investment than DMY Squared. However, Microsoft is 3.65 times less risky than DMY Squared. It trades about 0.36 of its potential returns per unit of risk. dMY Squared Technology is currently generating about 0.01 per unit of risk. If you would invest  43,448  in Microsoft on May 2, 2025 and sell it today you would earn a total of  7,876  from holding Microsoft or generate 18.13% return on investment over 90 days.

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

Microsoft  vs.  dMY Squared Technology

Microsoft

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 28 (%) 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.

dMY Squared Technology

Risk-Adjusted Performance

Weak

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

Pair Trading with Microsoft and DMY Squared

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

The idea behind Microsoft and dMY Squared Technology 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.