Correlation Between Microsoft and Prudential Financial

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

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

Diversification Opportunities for Microsoft and Prudential Financial

-0.18

Correlation Coefficient

Microsoft  Prudential Financial

Good diversification

The 3 months correlation between Microsoft and Prudential is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Prudential Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Financial 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 Prudential Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Financial has no effect on the direction of Microsoft i.e., Microsoft and Prudential Financial go up and down completely randomly.

Pair Corralation between Microsoft and Prudential Financial

Given the investment horizon of 90 days Microsoft is expected to generate 1.25 times more return on investment than Prudential Financial. However, Microsoft is 1.25 times more volatile than Prudential Financial Services. It trades about 0.08 of its potential returns per unit of risk. Prudential Financial Services is currently generating about 0.05 per unit of risk. If you would invest  49,028  in Microsoft on July 2, 2025 and sell it today you would earn a total of  2,432  from holding Microsoft or generate 4.96% return on investment over 90 days.

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

Microsoft  vs.  Prudential Financial Services

Microsoft

Risk-Adjusted Performance

Mild

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 stable technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Prudential Financial

Risk-Adjusted Performance

Soft

Compared to the overall equity markets, risk-adjusted returns on investments in Prudential Financial Services are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Prudential Financial 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 Prudential Financial

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

The idea behind Microsoft and Prudential Financial Services 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.