Correlation Between Microsoft and Carbon Revolution

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

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

Diversification Opportunities for Microsoft and Carbon Revolution

-0.15

Correlation Coefficient

Microsoft  Carbon Revolution

Good diversification

The 3 months correlation between Microsoft and Carbon is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Carbon Revolution Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carbon Revolution Public 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 Carbon Revolution. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Carbon Revolution Public has no effect on the direction of Microsoft i.e., Microsoft and Carbon Revolution go up and down completely randomly.

Pair Corralation between Microsoft and Carbon Revolution

Given the investment horizon of 90 days Microsoft is expected to under-perform the Carbon Revolution. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 25.57 times less risky than Carbon Revolution. The stock trades about -0.21 of its potential returns per unit of risk. The Carbon Revolution Public is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  232.00  in Carbon Revolution Public on October 17, 2024 and sell it today you would earn a total of  340.00  from holding Carbon Revolution Public or generate 146.55% return on investment over 90 days.

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

Microsoft  vs.  Carbon Revolution Public

Microsoft

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Carbon Revolution Public

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Carbon Revolution Public are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Carbon Revolution showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Carbon Revolution

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

The idea behind Microsoft and Carbon Revolution Public 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.

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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.