Correlation Between Microsoft and Hunan Oil

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

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

Diversification Opportunities for Microsoft and Hunan Oil

-0.76

Correlation Coefficient

Microsoft  Hunan Oil

Pay attention - limited upside

The 3 months correlation between Microsoft and Hunan is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Hunan Oil Pump in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hunan Oil Pump 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 Hunan Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hunan Oil Pump has no effect on the direction of Microsoft i.e., Microsoft and Hunan Oil go up and down completely randomly.

Pair Corralation between Microsoft and Hunan Oil

Given the investment horizon of 90 days Microsoft is expected to under-perform the Hunan Oil. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 3.27 times less risky than Hunan Oil. The stock trades about -0.11 of its potential returns per unit of risk. The Hunan Oil Pump is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  2,361  in Hunan Oil Pump on December 24, 2024 and sell it today you would earn a total of  1,408  from holding Hunan Oil Pump or generate 59.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.08%
Values	Daily Returns

Microsoft  vs.  Hunan Oil Pump

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.

Hunan Oil Pump

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hunan Oil Pump are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hunan Oil sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Hunan Oil

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

The idea behind Microsoft and Hunan Oil Pump 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.