Correlation Between Microsoft and Schwab International

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

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

Diversification Opportunities for Microsoft and Schwab International

0.9

Correlation Coefficient

Microsoft  Schwab International

Almost no diversification

The 3 months correlation between Microsoft and Schwab is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Schwab International Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab International 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 Schwab International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab International has no effect on the direction of Microsoft i.e., Microsoft and Schwab International go up and down completely randomly.

Pair Corralation between Microsoft and Schwab International

Given the investment horizon of 90 days Microsoft is expected to generate 1.28 times more return on investment than Schwab International. However, Microsoft is 1.28 times more volatile than Schwab International Equity. It trades about 0.32 of its potential returns per unit of risk. Schwab International Equity is currently generating about 0.1 per unit of risk. If you would invest  43,537  in Microsoft on May 5, 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	Very Strong
Accuracy	100.0%
Values	Daily Returns

Microsoft  vs.  Schwab International Equity

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.

Schwab International

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab International Equity are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical indicators, Schwab International is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Microsoft and Schwab International

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

The idea behind Microsoft and Schwab International Equity 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.