Correlation Between Microsoft and IDEXX Laboratories

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

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

Diversification Opportunities for Microsoft and IDEXX Laboratories

0.87

Correlation Coefficient

Microsoft  IDEXX Laboratories

Very poor diversification

The 3 months correlation between Microsoft and IDEXX is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and IDEXX Laboratories in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IDEXX Laboratories 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 IDEXX Laboratories. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IDEXX Laboratories has no effect on the direction of Microsoft i.e., Microsoft and IDEXX Laboratories go up and down completely randomly.

Pair Corralation between Microsoft and IDEXX Laboratories

Given the investment horizon of 90 days Microsoft is expected to generate 0.64 times more return on investment than IDEXX Laboratories. However, Microsoft is 1.57 times less risky than IDEXX Laboratories. It trades about 0.33 of its potential returns per unit of risk. IDEXX Laboratories is currently generating about 0.14 per unit of risk. If you would invest  43,537  in Microsoft on May 4, 2025 and sell it today you would earn a total of  8,874  from holding Microsoft or generate 20.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.41%
Values	Daily Returns

Microsoft  vs.  IDEXX Laboratories

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.

IDEXX Laboratories

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in IDEXX Laboratories are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, IDEXX Laboratories showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and IDEXX Laboratories

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

The idea behind Microsoft and IDEXX Laboratories 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.