Correlation Between Microsoft and First Trust

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

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

Diversification Opportunities for Microsoft and First Trust

0.66

Correlation Coefficient

Microsoft  First Trust

Poor diversification

The 3 months correlation between Microsoft and First is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and First Trust Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Global 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 Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Global has no effect on the direction of Microsoft i.e., Microsoft and First Trust go up and down completely randomly.

Pair Corralation between Microsoft and First Trust

Given the investment horizon of 90 days Microsoft is expected to generate 1.6 times more return on investment than First Trust. However, Microsoft is 1.6 times more volatile than First Trust Global. It trades about 0.35 of its potential returns per unit of risk. First Trust Global is currently generating about 0.13 per unit of risk. If you would invest  39,454  in Microsoft on April 30, 2025 and sell it today you would earn a total of  11,803  from holding Microsoft or generate 29.92% return on investment over 90 days.

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

Microsoft  vs.  First Trust Global

Microsoft

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 27 (%) 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 Trust Global

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Global are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with Microsoft and First Trust

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

The idea behind Microsoft and First Trust Global 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.