Correlation Between Microsoft and Power Assets

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

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

Diversification Opportunities for Microsoft and Power Assets

0.71

Correlation Coefficient

Microsoft  Power Assets

Poor diversification

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

Pair Corralation between Microsoft and Power Assets

Assuming the 90 days trading horizon Microsoft is expected to generate 1.39 times more return on investment than Power Assets. However, Microsoft is 1.39 times more volatile than Power Assets Holdings. It trades about 0.21 of its potential returns per unit of risk. Power Assets Holdings is currently generating about 0.21 per unit of risk. If you would invest  39,455  in Microsoft on September 22, 2024 and sell it today you would earn a total of  2,260  from holding Microsoft or generate 5.73% return on investment over 90 days.

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

Microsoft  vs.  Power Assets Holdings

Microsoft

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 6 (%) 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.

Power Assets Holdings

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Power Assets Holdings are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Power Assets is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Microsoft and Power Assets

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

The idea behind Microsoft and Power Assets Holdings 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.