Correlation Between Microsoft and PetroChina Company

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

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

Diversification Opportunities for Microsoft and PetroChina Company

-0.36

Correlation Coefficient

Microsoft  PetroChina Company

Very good diversification

The 3 months correlation between Microsoft and PetroChina is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and PetroChina Company Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PetroChina Limited 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 PetroChina Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PetroChina Limited has no effect on the direction of Microsoft i.e., Microsoft and PetroChina Company go up and down completely randomly.

Pair Corralation between Microsoft and PetroChina Company

Assuming the 90 days trading horizon Microsoft is expected to generate 1.85 times less return on investment than PetroChina Company. But when comparing it to its historical volatility, Microsoft is 1.6 times less risky than PetroChina Company. It trades about 0.21 of its potential returns per unit of risk. PetroChina Company Limited is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  67.00  in PetroChina Company Limited on September 29, 2024 and sell it today you would earn a total of  6.00  from holding PetroChina Company Limited or generate 8.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.0%
Values	Daily Returns

Microsoft  vs.  PetroChina Company Limited

Microsoft

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in January 2025.

PetroChina Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PetroChina Company Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, PetroChina Company is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Microsoft and PetroChina Company

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

The idea behind Microsoft and PetroChina Company Limited 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.