Correlation Between Microsoft and Ab Small

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

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

Diversification Opportunities for Microsoft and Ab Small

0.67

Correlation Coefficient

Microsoft  Ab Small

Poor diversification

The 3 months correlation between Microsoft and SCAVX is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Ab Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ab Small Cap 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 Ab Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ab Small Cap has no effect on the direction of Microsoft i.e., Microsoft and Ab Small go up and down completely randomly.

Pair Corralation between Microsoft and Ab Small

Given the investment horizon of 90 days Microsoft is expected to generate 0.98 times more return on investment than Ab Small. However, Microsoft is 1.03 times less risky than Ab Small. It trades about 0.16 of its potential returns per unit of risk. Ab Small Cap is currently generating about 0.01 per unit of risk. If you would invest  39,236  in Microsoft on March 24, 2025 and sell it today you would earn a total of  8,504  from holding Microsoft or generate 21.67% return on investment over 90 days.

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

Microsoft  vs.  Ab Small Cap

Microsoft

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal technical and fundamental indicators, Microsoft unveiled solid returns over the last few months and may actually be approaching a breakup point.

Ab Small Cap

Risk-Adjusted Performance

Very Weak

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

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

The idea behind Microsoft and Ab Small Cap 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.