Correlation Between Microsoft and Eternal Materials

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

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

Diversification Opportunities for Microsoft and Eternal Materials

0.01

Correlation Coefficient

Microsoft  Eternal Materials

Significant diversification

The 3 months correlation between Microsoft and Eternal is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Eternal Materials Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eternal Materials 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 Eternal Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eternal Materials has no effect on the direction of Microsoft i.e., Microsoft and Eternal Materials go up and down completely randomly.

Pair Corralation between Microsoft and Eternal Materials

Given the investment horizon of 90 days Microsoft is expected to under-perform the Eternal Materials. In addition to that, Microsoft is 1.23 times more volatile than Eternal Materials Co. It trades about -0.25 of its total potential returns per unit of risk. Eternal Materials Co is currently generating about 0.02 per unit of volatility. If you would invest  2,840  in Eternal Materials Co on December 5, 2024 and sell it today you would earn a total of  10.00  from holding Eternal Materials Co or generate 0.35% return on investment over 90 days.

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

Microsoft  vs.  Eternal Materials Co

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 abnormal performance in the last few months, the Stock's technical and fundamental indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Eternal Materials

Risk-Adjusted Performance

Very Weak

Over the last 90 days Eternal Materials Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Eternal Materials is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Microsoft and Eternal Materials

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

The idea behind Microsoft and Eternal Materials Co 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.