Correlation Between Microsoft and Clorox
Can any of the company-specific risk be diversified away by investing in both Microsoft and Clorox 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 Clorox into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and The Clorox, you can compare the effects of market volatilities on Microsoft and Clorox 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 Clorox. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Clorox.
Diversification Opportunities for Microsoft and Clorox
Poor diversification
The 3 months correlation between Microsoft and Clorox is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and The Clorox in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Clorox 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 Clorox. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Clorox has no effect on the direction of Microsoft i.e., Microsoft and Clorox go up and down completely randomly.
Pair Corralation between Microsoft and Clorox
Given the investment horizon of 90 days Microsoft is expected to under-perform the Clorox. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.3 times less risky than Clorox. The stock trades about -0.06 of its potential returns per unit of risk. The The Clorox is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest 10,014 in The Clorox on September 19, 2025 and sell it today you would lose (75.00) from holding The Clorox or give up 0.75% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. The Clorox
Performance |
| Timeline |
| Microsoft |
| Clorox |
Microsoft and Clorox Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Clorox
The main advantage of trading using opposite Microsoft and Clorox positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Clorox 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 Clorox will offset losses from the drop in Clorox's long position.| Microsoft vs. Alpha Technology Group | Microsoft vs. Bandwidth | Microsoft vs. Gorilla Technology Group | Microsoft vs. FINEOS Holdings |
| Clorox vs. Brown Forman | Clorox vs. Hormel Foods | Clorox vs. BJs Wholesale Club | Clorox vs. Somnigroup International |
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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