Correlation Between Microsoft and CEA Industries

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

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

Diversification Opportunities for Microsoft and CEA Industries

-0.64

Correlation Coefficient

Microsoft  CEA Industries

Excellent diversification

The 3 months correlation between Microsoft and CEA is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and CEA Industries Warrant in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CEA Industries Warrant 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 CEA Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CEA Industries Warrant has no effect on the direction of Microsoft i.e., Microsoft and CEA Industries go up and down completely randomly.

Pair Corralation between Microsoft and CEA Industries

Given the investment horizon of 90 days Microsoft is expected to under-perform the CEA Industries. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 15.34 times less risky than CEA Industries. The stock trades about -0.11 of its potential returns per unit of risk. The CEA Industries Warrant is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  1.00  in CEA Industries Warrant on December 28, 2024 and sell it today you would earn a total of  0.78  from holding CEA Industries Warrant or generate 78.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	70.49%
Values	Daily Returns

Microsoft  vs.  CEA Industries Warrant

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.

CEA Industries Warrant

Risk-Adjusted Performance

Good

Over the last 90 days CEA Industries Warrant has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly unsteady fundamental indicators, CEA Industries showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and CEA Industries

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

The idea behind Microsoft and CEA Industries Warrant 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.