Correlation Between Microsoft and Cabot
Can any of the company-specific risk be diversified away by investing in both Microsoft and Cabot 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 Cabot into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Cabot, you can compare the effects of market volatilities on Microsoft and Cabot 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 Cabot. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Cabot.
Diversification Opportunities for Microsoft and Cabot
Very weak diversification
The 3 months correlation between Microsoft and Cabot is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Cabot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cabot 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 Cabot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cabot has no effect on the direction of Microsoft i.e., Microsoft and Cabot go up and down completely randomly.
Pair Corralation between Microsoft and Cabot
Given the investment horizon of 90 days Microsoft is expected to under-perform the Cabot. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.59 times less risky than Cabot. The stock trades about -0.14 of its potential returns per unit of risk. The Cabot is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest 7,496 in Cabot on October 5, 2025 and sell it today you would lose (791.00) from holding Cabot or give up 10.55% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Cabot
Performance |
| Timeline |
| Microsoft |
| Cabot |
Microsoft and Cabot Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Cabot
The main advantage of trading using opposite Microsoft and Cabot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Cabot 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 Cabot will offset losses from the drop in Cabot's long position.| Microsoft vs. CoreWeave Class A | Microsoft vs. Motorola Solutions | Microsoft vs. Autodesk | Microsoft vs. Infosys Ltd ADR |
Check out your portfolio center.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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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