Correlation Between Microsoft and CAREER EDUCATION

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

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

Diversification Opportunities for Microsoft and CAREER EDUCATION

0.79

Correlation Coefficient

Microsoft  CAREER EDUCATION

Poor diversification

The 3 months correlation between Microsoft and CAREER is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and CAREER EDUCATION in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CAREER EDUCATION 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 CAREER EDUCATION. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CAREER EDUCATION has no effect on the direction of Microsoft i.e., Microsoft and CAREER EDUCATION go up and down completely randomly.

Pair Corralation between Microsoft and CAREER EDUCATION

Assuming the 90 days trading horizon Microsoft is expected to generate 3.67 times less return on investment than CAREER EDUCATION. But when comparing it to its historical volatility, Microsoft is 2.0 times less risky than CAREER EDUCATION. It trades about 0.1 of its potential returns per unit of risk. CAREER EDUCATION is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  1,940  in CAREER EDUCATION on October 15, 2024 and sell it today you would earn a total of  620.00  from holding CAREER EDUCATION or generate 31.96% return on investment over 90 days.

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

Microsoft  vs.  CAREER EDUCATION

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 February 2025.

CAREER EDUCATION

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CAREER EDUCATION are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, CAREER EDUCATION exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and CAREER EDUCATION

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

The idea behind Microsoft and CAREER EDUCATION 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.