Correlation Between Microsoft and Endesa SA

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

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

Diversification Opportunities for Microsoft and Endesa SA

0.77

Correlation Coefficient

Microsoft  Endesa SA

Poor diversification

The 3 months correlation between Microsoft and Endesa is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Endesa SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Endesa SA 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 Endesa SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Endesa SA has no effect on the direction of Microsoft i.e., Microsoft and Endesa SA go up and down completely randomly.

Pair Corralation between Microsoft and Endesa SA

Assuming the 90 days trading horizon Microsoft is expected to generate 0.96 times more return on investment than Endesa SA. However, Microsoft is 1.04 times less risky than Endesa SA. It trades about 0.38 of its potential returns per unit of risk. Endesa SA is currently generating about 0.17 per unit of risk. If you would invest  39,157  in Microsoft on September 17, 2024 and sell it today you would earn a total of  3,468  from holding Microsoft or generate 8.86% return on investment over 90 days.

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

Microsoft  vs.  Endesa SA

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

Endesa SA

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Endesa SA are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Endesa SA is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Microsoft and Endesa SA

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

The idea behind Microsoft and Endesa SA 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.