Correlation Between Microsoft and Electronic Systems

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

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

Diversification Opportunities for Microsoft and Electronic Systems

-0.34

Correlation Coefficient

Microsoft  Electronic Systems

Very good diversification

The 3 months correlation between Microsoft and Electronic is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Electronic Systems Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electronic Systems 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 Electronic Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Electronic Systems has no effect on the direction of Microsoft i.e., Microsoft and Electronic Systems go up and down completely randomly.

Pair Corralation between Microsoft and Electronic Systems

Given the investment horizon of 90 days Microsoft is expected to generate 2.6 times less return on investment than Electronic Systems. But when comparing it to its historical volatility, Microsoft is 25.12 times less risky than Electronic Systems. It trades about 0.32 of its potential returns per unit of risk. Electronic Systems Technology is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  10.00  in Electronic Systems Technology on May 4, 2025 and sell it today you would lose (8.00) from holding Electronic Systems Technology or give up 80.0% of portfolio value over 90 days.

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

Microsoft  vs.  Electronic Systems Technology

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.

Electronic Systems

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Electronic Systems Technology are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting basic indicators, Electronic Systems unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Electronic Systems

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

The idea behind Microsoft and Electronic Systems 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.