Correlation Between Microsoft Corp and Tidewater Renewables

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

Diversification Opportunities for Microsoft Corp and Tidewater Renewables

-0.04

Correlation Coefficient

Microsoft Corp  Tidewater Renewables

Good diversification

The 3 months correlation between Microsoft and Tidewater is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft Corp CDR and Tidewater Renewables in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tidewater Renewables 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 Tidewater Renewables. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tidewater Renewables has no effect on the direction of Microsoft Corp i.e., Microsoft Corp and Tidewater Renewables go up and down completely randomly.

Pair Corralation between Microsoft Corp and Tidewater Renewables

Assuming the 90 days trading horizon Microsoft Corp CDR is expected to generate 0.12 times more return on investment than Tidewater Renewables. However, Microsoft Corp CDR is 8.18 times less risky than Tidewater Renewables. It trades about 0.27 of its potential returns per unit of risk. Tidewater Renewables is currently generating about -0.26 per unit of risk. If you would invest  2,984  in Microsoft Corp CDR on September 5, 2024 and sell it today you would earn a total of  212.00  from holding Microsoft Corp CDR or generate 7.1% return on investment over 90 days.

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

Microsoft Corp CDR  vs.  Tidewater Renewables

Microsoft Corp CDR

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft Corp CDR are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical and fundamental indicators, Microsoft Corp may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Tidewater Renewables

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tidewater Renewables has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Microsoft Corp and Tidewater Renewables

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

The idea behind Microsoft Corp CDR and Tidewater Renewables 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.