Correlation Between Microsoft and Prime Oil

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

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

Diversification Opportunities for Microsoft and Prime Oil

-0.33

Correlation Coefficient

Microsoft  Prime Oil

Very good diversification

The 3 months correlation between Microsoft and Prime is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Prime Oil Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prime Oil Chemical 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 Prime Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prime Oil Chemical has no effect on the direction of Microsoft i.e., Microsoft and Prime Oil go up and down completely randomly.

Pair Corralation between Microsoft and Prime Oil

Given the investment horizon of 90 days Microsoft is expected to generate 3.19 times more return on investment than Prime Oil. However, Microsoft is 3.19 times more volatile than Prime Oil Chemical. It trades about 0.05 of its potential returns per unit of risk. Prime Oil Chemical is currently generating about -0.03 per unit of risk. If you would invest  43,048  in Microsoft on September 14, 2024 and sell it today you would earn a total of  1,679  from holding Microsoft or generate 3.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.88%
Values	Daily Returns

Microsoft  vs.  Prime Oil Chemical

Microsoft

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. 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.

Prime Oil Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Prime Oil Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Prime Oil 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 Prime Oil

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

The idea behind Microsoft and Prime Oil Chemical 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.