Correlation Between Microsoft and INDIKA ENERGY

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

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

Diversification Opportunities for Microsoft and INDIKA ENERGY

-0.71

Correlation Coefficient

Microsoft  INDIKA ENERGY

Pay attention - limited upside

The 3 months correlation between Microsoft and INDIKA is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and INDIKA ENERGY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on INDIKA ENERGY 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 INDIKA ENERGY. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of INDIKA ENERGY has no effect on the direction of Microsoft i.e., Microsoft and INDIKA ENERGY go up and down completely randomly.

Pair Corralation between Microsoft and INDIKA ENERGY

Assuming the 90 days trading horizon Microsoft is expected to generate 0.54 times more return on investment than INDIKA ENERGY. However, Microsoft is 1.84 times less risky than INDIKA ENERGY. It trades about 0.11 of its potential returns per unit of risk. INDIKA ENERGY is currently generating about -0.13 per unit of risk. If you would invest  40,775  in Microsoft on September 27, 2024 and sell it today you would earn a total of  1,190  from holding Microsoft or generate 2.92% return on investment over 90 days.

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

Microsoft  vs.  INDIKA ENERGY

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

INDIKA ENERGY

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days INDIKA ENERGY has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Microsoft and INDIKA ENERGY

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

The idea behind Microsoft and INDIKA ENERGY 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.