Correlation Between Microsoft and Aqua America

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

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

Diversification Opportunities for Microsoft and Aqua America

-0.49

Correlation Coefficient

Microsoft  Aqua America

Very good diversification

The 3 months correlation between Microsoft and Aqua is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Aqua America in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aqua America 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 Aqua America. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aqua America has no effect on the direction of Microsoft i.e., Microsoft and Aqua America go up and down completely randomly.

Pair Corralation between Microsoft and Aqua America

Given the investment horizon of 90 days Microsoft is expected to under-perform the Aqua America. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.08 times less risky than Aqua America. The stock trades about -0.1 of its potential returns per unit of risk. The Aqua America is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  3,432  in Aqua America on December 22, 2024 and sell it today you would earn a total of  139.00  from holding Aqua America or generate 4.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Microsoft  vs.  Aqua America

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.

Aqua America

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Aqua America are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Aqua America is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Microsoft and Aqua America

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

The idea behind Microsoft and Aqua America 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.