Correlation Between Microsoft and Midcap Fund

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

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

Diversification Opportunities for Microsoft and Midcap Fund

0.25

Correlation Coefficient

Microsoft  Midcap Fund

Modest diversification

The 3 months correlation between Microsoft and Midcap is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Midcap Fund Institutional in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Midcap Fund Institutional 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 Midcap Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Midcap Fund Institutional has no effect on the direction of Microsoft i.e., Microsoft and Midcap Fund go up and down completely randomly.

Pair Corralation between Microsoft and Midcap Fund

Given the investment horizon of 90 days Microsoft is expected to generate 0.99 times more return on investment than Midcap Fund. However, Microsoft is 1.01 times less risky than Midcap Fund. It trades about 0.39 of its potential returns per unit of risk. Midcap Fund Institutional is currently generating about 0.17 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  8,795  from holding Microsoft or generate 20.71% return on investment over 90 days.

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

Microsoft  vs.  Midcap Fund Institutional

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.

Midcap Fund Institutional

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Midcap Fund Institutional are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Midcap Fund may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with Microsoft and Midcap Fund

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

The idea behind Microsoft and Midcap Fund Institutional 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.