Correlation Between Microsoft and Apple

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

By analyzing existing cross correlation between Microsoft and Apple Inc, you can compare the effects of market volatilities on Microsoft and Apple 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 Apple. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Apple.

Diversification Opportunities for Microsoft and Apple

-0.22

Correlation Coefficient

Microsoft  Apple

Very good diversification

The 3 months correlation between Microsoft and Apple is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Apple Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Apple Inc 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 Apple. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Apple Inc has no effect on the direction of Microsoft i.e., Microsoft and Apple go up and down completely randomly.

Pair Corralation between Microsoft and Apple

Assuming the 90 days trading horizon Microsoft is expected to under-perform the Apple. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.32 times less risky than Apple. The stock trades about -0.06 of its potential returns per unit of risk. The Apple Inc is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  15,528  in Apple Inc on February 8, 2024 and sell it today you would earn a total of  1,348  from holding Apple Inc or generate 8.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Microsoft  vs.  Apple Inc

Microsoft

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Microsoft has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Apple Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Apple Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Apple is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Microsoft and Apple

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

The idea behind Microsoft and Apple Inc 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.

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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.