Correlation Between Microsoft Corp and Colonial Coal

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

By analyzing existing cross correlation between Microsoft Corp CDR and Colonial Coal International, you can compare the effects of market volatilities on Microsoft Corp and Colonial Coal 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 Corp with a short position of Colonial Coal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft Corp and Colonial Coal.

Diversification Opportunities for Microsoft Corp and Colonial Coal

-0.61

Correlation Coefficient

Microsoft Corp  Colonial Coal

Excellent diversification

The 3 months correlation between Microsoft and Colonial is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft Corp CDR and Colonial Coal International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Colonial Coal Intern and Microsoft Corp 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 Corp CDR are associated (or correlated) with Colonial Coal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Colonial Coal Intern has no effect on the direction of Microsoft Corp i.e., Microsoft Corp and Colonial Coal go up and down completely randomly.

Pair Corralation between Microsoft Corp and Colonial Coal

Assuming the 90 days trading horizon Microsoft Corp is expected to generate 2.21 times less return on investment than Colonial Coal. But when comparing it to its historical volatility, Microsoft Corp CDR is 3.19 times less risky than Colonial Coal. It trades about 0.06 of its potential returns per unit of risk. Colonial Coal International is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  149.00  in Colonial Coal International on October 4, 2024 and sell it today you would earn a total of  44.00  from holding Colonial Coal International or generate 29.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.7%
Values	Daily Returns

Microsoft Corp CDR  vs.  Colonial Coal International

Microsoft Corp CDR

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Microsoft Corp CDR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Microsoft Corp is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Colonial Coal Intern

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Colonial Coal International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Microsoft Corp and Colonial Coal

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

The idea behind Microsoft Corp CDR and Colonial Coal International 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.