Correlation Between Microsoft and Rational Defensive

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

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

Diversification Opportunities for Microsoft and Rational Defensive

0.64

Correlation Coefficient

Microsoft  Rational Defensive

Poor diversification

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

Pair Corralation between Microsoft and Rational Defensive

Given the investment horizon of 90 days Microsoft is expected to generate 1.11 times more return on investment than Rational Defensive. However, Microsoft is 1.11 times more volatile than Rational Defensive Growth. It trades about 0.16 of its potential returns per unit of risk. Rational Defensive Growth is currently generating about 0.09 per unit of risk. If you would invest  38,711  in Microsoft on February 17, 2025 and sell it today you would earn a total of  6,716  from holding Microsoft or generate 17.35% return on investment over 90 days.

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

Microsoft  vs.  Rational Defensive Growth

Microsoft

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in June 2025.

Rational Defensive Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days Rational Defensive Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Rational Defensive 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 Rational Defensive

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

The idea behind Microsoft and Rational Defensive Growth 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 Valuation module to check real value of public entities based on technical and fundamental data.