Correlation Between Microsoft and Undiscovered Managers

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

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

Diversification Opportunities for Microsoft and Undiscovered Managers

0.88

Correlation Coefficient

Microsoft  Undiscovered Managers

Very poor diversification

The 3 months correlation between Microsoft and Undiscovered is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Undiscovered Managers Behavior in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Undiscovered Managers 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 Undiscovered Managers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Undiscovered Managers has no effect on the direction of Microsoft i.e., Microsoft and Undiscovered Managers go up and down completely randomly.

Pair Corralation between Microsoft and Undiscovered Managers

Given the investment horizon of 90 days Microsoft is expected to generate 0.72 times more return on investment than Undiscovered Managers. However, Microsoft is 1.39 times less risky than Undiscovered Managers. It trades about 0.38 of its potential returns per unit of risk. Undiscovered Managers Behavioral is currently generating about 0.1 per unit of risk. If you would invest  43,448  in Microsoft on May 2, 2025 and sell it today you would earn a total of  9,902  from holding Microsoft or generate 22.79% return on investment over 90 days.

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

Microsoft  vs.  Undiscovered Managers Behavior

Microsoft

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 29 (%) 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.

Undiscovered Managers

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Undiscovered Managers Behavioral are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Undiscovered Managers may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with Microsoft and Undiscovered Managers

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

The idea behind Microsoft and Undiscovered Managers Behavioral 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 .