Correlation Between Microsoft and CVR Energy

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

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

Diversification Opportunities for Microsoft and CVR Energy

-0.07

Correlation Coefficient

Microsoft  CVR Energy

Good diversification

The 3 months correlation between Microsoft and CVR is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and CVR Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVR Energy 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 CVR Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CVR Energy has no effect on the direction of Microsoft i.e., Microsoft and CVR Energy go up and down completely randomly.

Pair Corralation between Microsoft and CVR Energy

Given the investment horizon of 90 days Microsoft is expected to under-perform the CVR Energy. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.79 times less risky than CVR Energy. The stock trades about -0.33 of its potential returns per unit of risk. The CVR Energy is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,930  in CVR Energy on November 29, 2024 and sell it today you would earn a total of  48.00  from holding CVR Energy or generate 2.49% return on investment over 90 days.

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

Microsoft  vs.  CVR Energy

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 comparatively stable technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

CVR Energy

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CVR Energy are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, CVR Energy 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 CVR Energy

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

The idea behind Microsoft and CVR Energy 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.