Correlation Between Microsoft and SPX6900

Can any of the company-specific risk be diversified away by investing in both Microsoft and SPX6900 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 SPX6900 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Microsoft and SPX6900, you can compare the effects of market volatilities on Microsoft and SPX6900 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 SPX6900. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and SPX6900.

Diversification Opportunities for Microsoft and SPX6900

0.65

Correlation Coefficient

Microsoft  SPX6900

Poor diversification

The 3 months correlation between Microsoft and SPX6900 is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and SPX6900 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPX6900 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 SPX6900. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPX6900 has no effect on the direction of Microsoft i.e., Microsoft and SPX6900 go up and down completely randomly.

Pair Corralation between Microsoft and SPX6900

Given the investment horizon of 90 days Microsoft is expected to generate 0.17 times more return on investment than SPX6900. However, Microsoft is 5.92 times less risky than SPX6900. It trades about -0.12 of its potential returns per unit of risk. SPX6900 is currently generating about -0.04 per unit of risk. If you would invest  44,317  in Microsoft on January 24, 2025 and sell it today you would lose (6,878) from holding Microsoft or give up 15.52% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.88%
Values	Daily Returns

Microsoft  vs.  SPX6900

Microsoft

Risk-Adjusted Performance

Very Weak

Over the last 90 days Microsoft has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's technical and fundamental indicators remain comparatively stable which may send shares a bit higher in May 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

SPX6900

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPX6900 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Crypto's basic indicators remain rather sound which may send shares a bit higher in May 2025. The latest tumult may also be a sign of longer-term up-swing for SPX6900 shareholders.

Pair Trading with Microsoft and SPX6900

The main advantage of trading using opposite Microsoft and SPX6900 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, SPX6900 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 SPX6900 will offset losses from the drop in SPX6900's long position.

The idea behind Microsoft and SPX6900 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.