Correlation Between Microsoft and Emerging Markets
Can any of the company-specific risk be diversified away by investing in both Microsoft and Emerging Markets 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 Emerging Markets into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Emerging Markets Equity, you can compare the effects of market volatilities on Microsoft and Emerging Markets 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 Emerging Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Emerging Markets.
Diversification Opportunities for Microsoft and Emerging Markets
0.98 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Microsoft and Emerging is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Emerging Markets Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets Equity 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 Emerging Markets. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emerging Markets Equity has no effect on the direction of Microsoft i.e., Microsoft and Emerging Markets go up and down completely randomly.
Pair Corralation between Microsoft and Emerging Markets
Given the investment horizon of 90 days Microsoft is expected to generate 1.73 times more return on investment than Emerging Markets. However, Microsoft is 1.73 times more volatile than Emerging Markets Equity. It trades about 0.45 of its potential returns per unit of risk. Emerging Markets Equity is currently generating about 0.35 per unit of risk. If you would invest 35,846 in Microsoft on April 20, 2025 and sell it today you would earn a total of 15,159 from holding Microsoft or generate 42.29% 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. Emerging Markets Equity
Performance |
| Timeline |
| Microsoft |
| Emerging Markets Equity |
Microsoft and Emerging Markets Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Emerging Markets
The main advantage of trading using opposite Microsoft and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Emerging Markets 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 Emerging Markets will offset losses from the drop in Emerging Markets' long position.| Microsoft vs. Palantir Technologies Class | Microsoft vs. Crowdstrike Holdings | Microsoft vs. Oracle | Microsoft vs. CoreWeave, Class A |
| Emerging Markets vs. Aig Government Money | Emerging Markets vs. Franklin Government Securities | Emerging Markets vs. Davis Government Bond | Emerging Markets vs. Franklin Adjustable Government |
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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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