Correlation Between Microsoft and MegaShort

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

By analyzing existing cross correlation between Microsoft and MegaShort SP 500, you can compare the effects of market volatilities on Microsoft and MegaShort 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 MegaShort. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and MegaShort.

Diversification Opportunities for Microsoft and MegaShort

-0.24

Correlation Coefficient

Microsoft  MegaShort

Very good diversification

The 3 months correlation between Microsoft and MegaShort is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and MegaShort SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MegaShort SP 500 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 MegaShort. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MegaShort SP 500 has no effect on the direction of Microsoft i.e., Microsoft and MegaShort go up and down completely randomly.

Pair Corralation between Microsoft and MegaShort

Given the investment horizon of 90 days Microsoft is expected to generate 0.6 times more return on investment than MegaShort. However, Microsoft is 1.68 times less risky than MegaShort. It trades about 0.05 of its potential returns per unit of risk. MegaShort SP 500 is currently generating about -0.15 per unit of risk. If you would invest  49,659  in Microsoft on June 30, 2025 and sell it today you would earn a total of  1,487  from holding Microsoft or generate 2.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Microsoft  vs.  MegaShort SP 500

Microsoft

Risk-Adjusted Performance

Soft

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 3 (%) 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.

MegaShort SP 500

Risk-Adjusted Performance

Weakest

Over the last 90 days MegaShort SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Etf's basic indicators remain very healthy which may send shares a bit higher in October 2025. The recent disarray may also be a sign of long period up-swing for the ETF investors.

Pair Trading with Microsoft and MegaShort

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

The idea behind Microsoft and MegaShort SP 500 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.