Correlation Between Microsoft Corp and CHEVRON CDR

Can any of the company-specific risk be diversified away by investing in both Microsoft Corp and CHEVRON CDR 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 CHEVRON CDR 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 CHEVRON CDR, you can compare the effects of market volatilities on Microsoft Corp and CHEVRON CDR 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 CHEVRON CDR. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft Corp and CHEVRON CDR.

Diversification Opportunities for Microsoft Corp and CHEVRON CDR

-0.16

Correlation Coefficient

Microsoft Corp  CHEVRON CDR

Good diversification

The 3 months correlation between Microsoft and CHEVRON is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft Corp CDR and CHEVRON CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHEVRON CDR 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 CHEVRON CDR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHEVRON CDR has no effect on the direction of Microsoft Corp i.e., Microsoft Corp and CHEVRON CDR go up and down completely randomly.

Pair Corralation between Microsoft Corp and CHEVRON CDR

Assuming the 90 days trading horizon Microsoft Corp CDR is expected to under-perform the CHEVRON CDR. In addition to that, Microsoft Corp is 1.03 times more volatile than CHEVRON CDR. It trades about -0.09 of its total potential returns per unit of risk. CHEVRON CDR is currently generating about -0.02 per unit of volatility. If you would invest  2,149  in CHEVRON CDR on December 1, 2024 and sell it today you would lose (46.00) from holding CHEVRON CDR or give up 2.14% of portfolio value over 90 days.

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

Microsoft Corp CDR  vs.  CHEVRON CDR

Microsoft Corp CDR

Risk-Adjusted Performance

Very 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 latest abnormal performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

CHEVRON CDR

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Microsoft Corp and CHEVRON CDR

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

The idea behind Microsoft Corp CDR and CHEVRON CDR 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.