Correlation Between Microsoft and Eastern Communications

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

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

Diversification Opportunities for Microsoft and Eastern Communications

0.2

Correlation Coefficient

Microsoft  Eastern Communications

Modest diversification

The 3 months correlation between Microsoft and Eastern is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Eastern Communications Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastern Communications 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 Eastern Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eastern Communications has no effect on the direction of Microsoft i.e., Microsoft and Eastern Communications go up and down completely randomly.

Pair Corralation between Microsoft and Eastern Communications

Given the investment horizon of 90 days Microsoft is expected to under-perform the Eastern Communications. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 2.43 times less risky than Eastern Communications. The stock trades about -0.21 of its potential returns per unit of risk. The Eastern Communications Co is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  40.00  in Eastern Communications Co on December 1, 2024 and sell it today you would earn a total of  1.00  from holding Eastern Communications Co or generate 2.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	85.71%
Values	Daily Returns

Microsoft  vs.  Eastern Communications 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 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.

Eastern Communications

Risk-Adjusted Performance

Very Weak

Over the last 90 days Eastern Communications Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Eastern Communications 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 Eastern Communications

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

The idea behind Microsoft and Eastern Communications 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.