Correlation Between Microsoft and EVE Energy

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

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

Diversification Opportunities for Microsoft and EVE Energy

-0.23

Correlation Coefficient

Microsoft  EVE Energy

Very good diversification

The 3 months correlation between Microsoft and EVE is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and EVE Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EVE 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 EVE Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EVE Energy has no effect on the direction of Microsoft i.e., Microsoft and EVE Energy go up and down completely randomly.

Pair Corralation between Microsoft and EVE Energy

Given the investment horizon of 90 days Microsoft is expected to under-perform the EVE Energy. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 2.36 times less risky than EVE Energy. The stock trades about -0.07 of its potential returns per unit of risk. The EVE Energy is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  4,589  in EVE Energy on October 22, 2024 and sell it today you would lose (1.00) from holding EVE Energy or give up 0.02% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	90.48%
Values	Daily Returns

Microsoft  vs.  EVE Energy

Microsoft

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 1 (%) 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.

EVE Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EVE Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, EVE Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Microsoft and EVE Energy

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

The idea behind Microsoft and EVE 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.

Check out your portfolio center.

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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.