Correlation Between Microsoft and PENINSULA ENERG

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

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

Diversification Opportunities for Microsoft and PENINSULA ENERG

0.89

Correlation Coefficient

Microsoft  PENINSULA ENERG

Very poor diversification

The 3 months correlation between Microsoft and PENINSULA is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and PENINSULA ENERG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PENINSULA ENERG 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 PENINSULA ENERG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PENINSULA ENERG has no effect on the direction of Microsoft i.e., Microsoft and PENINSULA ENERG go up and down completely randomly.

Pair Corralation between Microsoft and PENINSULA ENERG

Assuming the 90 days trading horizon Microsoft is expected to generate 0.31 times more return on investment than PENINSULA ENERG. However, Microsoft is 3.25 times less risky than PENINSULA ENERG. It trades about -0.11 of its potential returns per unit of risk. PENINSULA ENERG is currently generating about -0.18 per unit of risk. If you would invest  40,963  in Microsoft on December 27, 2024 and sell it today you would lose (4,298) from holding Microsoft or give up 10.49% of portfolio value over 90 days.

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

Microsoft  vs.  PENINSULA ENERG

Microsoft

Risk-Adjusted Performance

Very Weak

Over the last 90 days Microsoft has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

PENINSULA ENERG

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Microsoft and PENINSULA ENERG

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

The idea behind Microsoft and PENINSULA ENERG 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.