Correlation Between Microsoft and First Resource

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

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

Diversification Opportunities for Microsoft and First Resource

0.81

Correlation Coefficient

Microsoft  First Resource

Very poor diversification

The 3 months correlation between Microsoft and First is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and First Resource Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Resource Bank 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 First Resource. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Resource Bank has no effect on the direction of Microsoft i.e., Microsoft and First Resource go up and down completely randomly.

Pair Corralation between Microsoft and First Resource

Given the investment horizon of 90 days Microsoft is expected to generate 0.57 times more return on investment than First Resource. However, Microsoft is 1.74 times less risky than First Resource. It trades about 0.39 of its potential returns per unit of risk. First Resource Bank is currently generating about 0.2 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  8,862  from holding Microsoft or generate 20.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.39%
Values	Daily Returns

Microsoft  vs.  First Resource Bank

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.

First Resource Bank

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Resource Bank are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, First Resource sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and First Resource

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

The idea behind Microsoft and First Resource Bank 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.