Correlation Between Microsoft and Defiance

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

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

Diversification Opportunities for Microsoft and Defiance

0.98

Correlation Coefficient

Microsoft  Defiance

Almost no diversification

The 3 months correlation between Microsoft and Defiance is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Defiance SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Defiance 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 Defiance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Defiance SP 500 has no effect on the direction of Microsoft i.e., Microsoft and Defiance go up and down completely randomly.

Pair Corralation between Microsoft and Defiance

Given the investment horizon of 90 days Microsoft is expected to generate 1.75 times more return on investment than Defiance. However, Microsoft is 1.75 times more volatile than Defiance SP 500. It trades about 0.36 of its potential returns per unit of risk. Defiance SP 500 is currently generating about 0.38 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  7,876  from holding Microsoft or generate 18.13% return on investment over 90 days.

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

Microsoft  vs.  Defiance SP 500

Microsoft

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 28 (%) 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.

Defiance SP 500

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Defiance SP 500 are ranked lower than 29 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal basic indicators, Defiance may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with Microsoft and Defiance

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

The idea behind Microsoft and Defiance 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.