Correlation Between Microsoft and World Energy
Can any of the company-specific risk be diversified away by investing in both Microsoft and World 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 World Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and World Energy Fund, you can compare the effects of market volatilities on Microsoft and World 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 World Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and World Energy.
Diversification Opportunities for Microsoft and World Energy
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Microsoft and World is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and World Energy Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on World 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 World Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of World Energy has no effect on the direction of Microsoft i.e., Microsoft and World Energy go up and down completely randomly.
Pair Corralation between Microsoft and World Energy
Given the investment horizon of 90 days Microsoft is expected to under-perform the World Energy. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.05 times less risky than World Energy. The stock trades about -0.11 of its potential returns per unit of risk. The World Energy Fund is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest 1,429 in World Energy Fund on December 28, 2024 and sell it today you would lose (7.00) from holding World Energy Fund or give up 0.49% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 98.36% |
Values | Daily Returns |
Microsoft vs. World Energy Fund
Performance |
Timeline |
Microsoft |
World Energy |
Microsoft and World Energy Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Microsoft and World Energy
The main advantage of trading using opposite Microsoft and World Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, World 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 World Energy will offset losses from the drop in World Energy's long position.Microsoft vs. Palo Alto Networks | Microsoft vs. Adobe Systems Incorporated | Microsoft vs. Crowdstrike Holdings | Microsoft vs. Zscaler |
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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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.
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