Correlation Between Microsoft and Shengyuan Environmental

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

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

Diversification Opportunities for Microsoft and Shengyuan Environmental

-0.35

Correlation Coefficient

Microsoft  Shengyuan Environmental

Very good diversification

The 3 months correlation between Microsoft and Shengyuan is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Shengyuan Environmental Protec in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shengyuan Environmental 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 Shengyuan Environmental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shengyuan Environmental has no effect on the direction of Microsoft i.e., Microsoft and Shengyuan Environmental go up and down completely randomly.

Pair Corralation between Microsoft and Shengyuan Environmental

Given the investment horizon of 90 days Microsoft is expected to under-perform the Shengyuan Environmental. In addition to that, Microsoft is 1.16 times more volatile than Shengyuan Environmental Protection. It trades about -0.1 of its total potential returns per unit of risk. Shengyuan Environmental Protection is currently generating about 0.03 per unit of volatility. If you would invest  1,315  in Shengyuan Environmental Protection on December 26, 2024 and sell it today you would earn a total of  25.00  from holding Shengyuan Environmental Protection or generate 1.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.0%
Values	Daily Returns

Microsoft  vs.  Shengyuan Environmental Protec

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 latest abnormal performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Shengyuan Environmental

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shengyuan Environmental Protection are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Shengyuan Environmental 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 Shengyuan Environmental

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

The idea behind Microsoft and Shengyuan Environmental Protection 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.