Correlation Between Microsoft and Short Intermediate

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

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

Diversification Opportunities for Microsoft and Short Intermediate

0.85

Correlation Coefficient

Microsoft  Short Intermediate

Very poor diversification

The 3 months correlation between Microsoft and Short is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Short Intermediate Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Intermediate Bond 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 Short Intermediate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Short Intermediate Bond has no effect on the direction of Microsoft i.e., Microsoft and Short Intermediate go up and down completely randomly.

Pair Corralation between Microsoft and Short Intermediate

Given the investment horizon of 90 days Microsoft is expected to generate 9.31 times more return on investment than Short Intermediate. However, Microsoft is 9.31 times more volatile than Short Intermediate Bond Fund. It trades about 0.36 of its potential returns per unit of risk. Short Intermediate Bond Fund is currently generating about 0.12 per unit of risk. If you would invest  39,044  in Microsoft on April 26, 2025 and sell it today you would earn a total of  12,044  from holding Microsoft or generate 30.85% return on investment over 90 days.

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

Microsoft  vs.  Short Intermediate Bond Fund

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.

Short Intermediate Bond

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Short Intermediate Bond Fund are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Short Intermediate is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Microsoft and Short Intermediate

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

The idea behind Microsoft and Short Intermediate Bond Fund 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.