Correlation Between Microsoft and ENN ENERGY

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

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

Diversification Opportunities for Microsoft and ENN ENERGY

0.7

Correlation Coefficient

Microsoft  ENN ENERGY

Poor diversification

The 3 months correlation between Microsoft and ENN is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and ENN ENERGY HLD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ENN ENERGY HLD 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 ENN ENERGY. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ENN ENERGY HLD has no effect on the direction of Microsoft i.e., Microsoft and ENN ENERGY go up and down completely randomly.

Pair Corralation between Microsoft and ENN ENERGY

Assuming the 90 days trading horizon Microsoft is expected to generate 0.43 times more return on investment than ENN ENERGY. However, Microsoft is 2.34 times less risky than ENN ENERGY. It trades about -0.19 of its potential returns per unit of risk. ENN ENERGY HLD is currently generating about -0.17 per unit of risk. If you would invest  42,255  in Microsoft on October 10, 2024 and sell it today you would lose (1,305) from holding Microsoft or give up 3.09% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	94.44%
Values	Daily Returns

Microsoft  vs.  ENN ENERGY HLD

Microsoft

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in February 2025.

ENN ENERGY HLD

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ENN ENERGY HLD are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, ENN ENERGY unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and ENN ENERGY

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

The idea behind Microsoft and ENN ENERGY HLD 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.