# Correlation Between Microsoft and Salesforce

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Can any of the company-specific risk be diversified away by investing in both Microsoft and Salesforce 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 Salesforce into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Salesforce, you can compare the effects of market volatilities on Microsoft and Salesforce 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 Salesforce. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Salesforce.

## Diversification Opportunities for Microsoft and Salesforce

 0.79 Correlation Coefficient

### Poor diversification

The 3 months correlation between Microsoft and Salesforce is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Salesforce in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Salesforce 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 Salesforce. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Salesforce has no effect on the direction of Microsoft i.e., Microsoft and Salesforce go up and down completely randomly.

## Pair Corralation between Microsoft and Salesforce

Given the investment horizon of 90 days Microsoft is expected to under-perform the Salesforce. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.16 times less risky than Salesforce. The stock trades about -0.01 of its potential returns per unit of risk. The Salesforce is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  28,786  in Salesforce on November 28, 2023 and sell it today you would earn a total of  1,253  from holding Salesforce or generate 4.35% return on investment over 90 days.
 Time Period 3 Months [change] Direction Moves Together Strength Significant Accuracy 100.0% Values Daily Returns

## Microsoft  vs.  Salesforce

 Performance
 Timeline
 Microsoft Correlation Profile

### 8 of 100

 Low High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in March 2024.
 Performance Backtest Predict
 Salesforce Correlation Profile

### 19 of 100

 Low High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Salesforce are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Salesforce displayed solid returns over the last few months and may actually be approaching a breakup point.
 Performance Backtest Predict

## Microsoft and Salesforce Volatility Contrast

 Predicted Return Density
 Returns

## Pair Trading with Microsoft and Salesforce

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