Correlation Between Microsoft and PETROSEA

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

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

Diversification Opportunities for Microsoft and PETROSEA

0.92

Correlation Coefficient

Microsoft  PETROSEA

Almost no diversification

The 3 months correlation between Microsoft and PETROSEA is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and PETROSEA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PETROSEA 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 PETROSEA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PETROSEA has no effect on the direction of Microsoft i.e., Microsoft and PETROSEA go up and down completely randomly.

Pair Corralation between Microsoft and PETROSEA

Assuming the 90 days trading horizon Microsoft is expected to generate 3.84 times less return on investment than PETROSEA. But when comparing it to its historical volatility, Microsoft is 4.43 times less risky than PETROSEA. It trades about 0.1 of its potential returns per unit of risk. PETROSEA is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  24.00  in PETROSEA on September 29, 2024 and sell it today you would earn a total of  141.00  from holding PETROSEA or generate 587.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	99.8%
Values	Daily Returns

Microsoft  vs.  PETROSEA

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

PETROSEA

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in PETROSEA are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, PETROSEA unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and PETROSEA

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

The idea behind Microsoft and PETROSEA 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.