Correlation Between Microsoft and Equity Income

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

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

Diversification Opportunities for Microsoft and Equity Income

0.55

Correlation Coefficient

Microsoft  Equity Income

Very weak diversification

The 3 months correlation between Microsoft and Equity is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Equity Income Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Income 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 Equity Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Income has no effect on the direction of Microsoft i.e., Microsoft and Equity Income go up and down completely randomly.

Pair Corralation between Microsoft and Equity Income

Given the investment horizon of 90 days Microsoft is expected to generate 2.08 times more return on investment than Equity Income. However, Microsoft is 2.08 times more volatile than Equity Income Fund. It trades about 0.45 of its potential returns per unit of risk. Equity Income Fund is currently generating about 0.22 per unit of risk. If you would invest  35,846  in Microsoft on April 20, 2025 and sell it today you would earn a total of  15,159  from holding Microsoft or generate 42.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Microsoft  vs.  Equity Income Fund

Microsoft

Risk-Adjusted Performance

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 35 (%) 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.

Equity Income

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Equity Income Fund are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Equity Income may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with Microsoft and Equity Income

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

The idea behind Microsoft and Equity Income Fund 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .