Correlation Between Microsoft and Foreign Bond
Can any of the company-specific risk be diversified away by investing in both Microsoft and Foreign Bond 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 Foreign Bond into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Foreign Bond Fund, you can compare the effects of market volatilities on Microsoft and Foreign Bond 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 Foreign Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Foreign Bond.
Diversification Opportunities for Microsoft and Foreign Bond
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Microsoft and Foreign is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Foreign Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Foreign Bond 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 Foreign Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Foreign Bond has no effect on the direction of Microsoft i.e., Microsoft and Foreign Bond go up and down completely randomly.
Pair Corralation between Microsoft and Foreign Bond
Given the investment horizon of 90 days Microsoft is expected to generate 2.62 times more return on investment than Foreign Bond. However, Microsoft is 2.62 times more volatile than Foreign Bond Fund. It trades about 0.35 of its potential returns per unit of risk. Foreign Bond Fund is currently generating about 0.09 per unit of risk. If you would invest 39,113 in Microsoft on April 25, 2025 and sell it today you would earn a total of 11,474 from holding Microsoft or generate 29.34% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 98.39% |
| Values | Daily Returns |
Microsoft vs. Foreign Bond Fund
Performance |
| Timeline |
| Microsoft |
| Foreign Bond |
Microsoft and Foreign Bond Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Foreign Bond
The main advantage of trading using opposite Microsoft and Foreign Bond positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Foreign Bond 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 Foreign Bond will offset losses from the drop in Foreign Bond's long position.| Microsoft vs. Palantir Technologies Class | Microsoft vs. Crowdstrike Holdings | Microsoft vs. Oracle | Microsoft vs. CoreWeave, Class A |
| Foreign Bond vs. Transamerica Financial Life | Foreign Bond vs. Mesirow Financial Small | Foreign Bond vs. John Hancock Financial | Foreign Bond vs. Vanguard Financials Index |
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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.
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