Correlation Between Microsoft and SWRV

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

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

Diversification Opportunities for Microsoft and SWRV

0.17

Correlation Coefficient

Microsoft  SWRV

Average diversification

The 3 months correlation between Microsoft and SWRV is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and SWRV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SWRV 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 SWRV. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SWRV has no effect on the direction of Microsoft i.e., Microsoft and SWRV go up and down completely randomly.

Pair Corralation between Microsoft and SWRV

Given the investment horizon of 90 days Microsoft is expected to generate 2.35 times less return on investment than SWRV. But when comparing it to its historical volatility, Microsoft is 7.61 times less risky than SWRV. It trades about 0.05 of its potential returns per unit of risk. SWRV is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1.73  in SWRV on May 1, 2025 and sell it today you would lose (1.23) from holding SWRV or give up 70.95% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.99%
Values	Daily Returns

Microsoft  vs.  SWRV

Microsoft

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 30 (%) 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.

SWRV

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SWRV are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, SWRV exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and SWRV

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

The idea behind Microsoft and SWRV 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.