Correlation Between Microsoft and HEMISPHERE EGY

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

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

Diversification Opportunities for Microsoft and HEMISPHERE EGY

0.21

Correlation Coefficient

Microsoft  HEMISPHERE EGY

Modest diversification

The 3 months correlation between Microsoft and HEMISPHERE is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and HEMISPHERE EGY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HEMISPHERE EGY 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 HEMISPHERE EGY. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HEMISPHERE EGY has no effect on the direction of Microsoft i.e., Microsoft and HEMISPHERE EGY go up and down completely randomly.

Pair Corralation between Microsoft and HEMISPHERE EGY

Assuming the 90 days trading horizon Microsoft is expected to generate 2.06 times less return on investment than HEMISPHERE EGY. But when comparing it to its historical volatility, Microsoft is 1.09 times less risky than HEMISPHERE EGY. It trades about 0.07 of its potential returns per unit of risk. HEMISPHERE EGY is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  76.00  in HEMISPHERE EGY on September 25, 2024 and sell it today you would earn a total of  47.00  from holding HEMISPHERE EGY or generate 61.84% return on investment over 90 days.

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

Microsoft  vs.  HEMISPHERE EGY

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

HEMISPHERE EGY

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in HEMISPHERE EGY are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, HEMISPHERE EGY is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Microsoft and HEMISPHERE EGY

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

The idea behind Microsoft and HEMISPHERE EGY 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.