Correlation Between Oracle and Microsoft

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

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

Diversification Opportunities for Oracle and Microsoft

0.87

Correlation Coefficient

Oracle  Microsoft

Very poor diversification

The 3 months correlation between Oracle and Microsoft is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Oracle and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and Oracle 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 Oracle are associated (or correlated) with Microsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft has no effect on the direction of Oracle i.e., Oracle and Microsoft go up and down completely randomly.

Pair Corralation between Oracle and Microsoft

Given the investment horizon of 90 days Oracle is expected to generate 1.51 times less return on investment than Microsoft. In addition to that, Oracle is 1.64 times more volatile than Microsoft. It trades about 0.06 of its total potential returns per unit of risk. Microsoft is currently generating about 0.14 per unit of volatility. If you would invest  32,805  in Microsoft on January 20, 2024 and sell it today you would earn a total of  7,622  from holding Microsoft or generate 23.23% return on investment over 90 days.

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

Oracle  vs.  Microsoft

Oracle

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Oracle are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite weak fundamental indicators, Oracle may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Microsoft

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Microsoft 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 Oracle and Microsoft

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

The idea behind Oracle and Microsoft 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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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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.