Correlation Between Microsoft and Discipline Fund

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

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

Diversification Opportunities for Microsoft and Discipline Fund

0.64

Correlation Coefficient

Microsoft  Discipline Fund

Poor diversification

The 3 months correlation between Microsoft and Discipline is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Discipline Fund ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Discipline Fund ETF 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 Discipline Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Discipline Fund ETF has no effect on the direction of Microsoft i.e., Microsoft and Discipline Fund go up and down completely randomly.

Pair Corralation between Microsoft and Discipline Fund

Given the investment horizon of 90 days Microsoft is expected to generate 2.9 times more return on investment than Discipline Fund. However, Microsoft is 2.9 times more volatile than Discipline Fund ETF. It trades about 0.33 of its potential returns per unit of risk. Discipline Fund ETF is currently generating about 0.16 per unit of risk. If you would invest  43,537  in Microsoft on May 4, 2025 and sell it today you would earn a total of  8,874  from holding Microsoft or generate 20.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Microsoft  vs.  Discipline Fund ETF

Microsoft

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 25 (%) 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.

Discipline Fund ETF

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Discipline Fund ETF are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental indicators, Discipline Fund is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Microsoft and Discipline Fund

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

The idea behind Microsoft and Discipline Fund ETF 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.