Correlation Between China DatangRenewable and Microsoft

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

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

Diversification Opportunities for China DatangRenewable and Microsoft

0.61

Correlation Coefficient

China DatangRenewable  Microsoft

Poor diversification

The 3 months correlation between China and Microsoft is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding China Datang and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and China DatangRenewable 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 China Datang 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 China DatangRenewable i.e., China DatangRenewable and Microsoft go up and down completely randomly.

Pair Corralation between China DatangRenewable and Microsoft

Assuming the 90 days horizon China Datang is expected to generate 2.57 times more return on investment than Microsoft. However, China DatangRenewable is 2.57 times more volatile than Microsoft. It trades about 0.12 of its potential returns per unit of risk. Microsoft is currently generating about -0.19 per unit of risk. If you would invest  23.00  in China Datang on October 8, 2024 and sell it today you would earn a total of  1.00  from holding China Datang 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

China Datang  vs.  Microsoft

China DatangRenewable

Risk-Adjusted Performance

6 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in China Datang are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, China DatangRenewable reported solid returns over the last few months and may actually be approaching a breakup point.

Microsoft

Risk-Adjusted Performance

8 of 100

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 fragile technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with China DatangRenewable and Microsoft

The main advantage of trading using opposite China DatangRenewable and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China DatangRenewable 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 China Datang 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.