Correlation Between Microsoft and Zacks Small-cap

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

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

Diversification Opportunities for Microsoft and Zacks Small-cap

0.94

Correlation Coefficient

Microsoft  Zacks Small-cap

Almost no diversification

The 3 months correlation between Microsoft and Zacks is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Zacks Small Cap E in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zacks Small Cap 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 Zacks Small-cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zacks Small Cap has no effect on the direction of Microsoft i.e., Microsoft and Zacks Small-cap go up and down completely randomly.

Pair Corralation between Microsoft and Zacks Small-cap

Given the investment horizon of 90 days Microsoft is expected to generate 0.73 times more return on investment than Zacks Small-cap. However, Microsoft is 1.37 times less risky than Zacks Small-cap. It trades about 0.39 of its potential returns per unit of risk. Zacks Small Cap E is currently generating about 0.17 per unit of risk. If you would invest  42,462  in Microsoft on May 1, 2025 and sell it today you would earn a total of  8,795  from holding Microsoft or generate 20.71% 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.  Zacks Small Cap E

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.

Zacks Small Cap

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Zacks Small Cap E are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Zacks Small-cap may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with Microsoft and Zacks Small-cap

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

The idea behind Microsoft and Zacks Small Cap E 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.