Correlation Between Microsoft and Eagle Point

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

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

Diversification Opportunities for Microsoft and Eagle Point

0.04

Correlation Coefficient

Microsoft  Eagle Point

Significant diversification

The 3 months correlation between Microsoft and Eagle is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Eagle Point Credit in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eagle Point Credit 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 Eagle Point. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eagle Point Credit has no effect on the direction of Microsoft i.e., Microsoft and Eagle Point go up and down completely randomly.

Pair Corralation between Microsoft and Eagle Point

Given the investment horizon of 90 days Microsoft is expected to under-perform the Eagle Point. In addition to that, Microsoft is 3.78 times more volatile than Eagle Point Credit. It trades about -0.12 of its total potential returns per unit of risk. Eagle Point Credit is currently generating about -0.07 per unit of volatility. If you would invest  2,359  in Eagle Point Credit on December 4, 2024 and sell it today you would lose (39.00) from holding Eagle Point Credit or give up 1.65% of portfolio value over 90 days.

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

Microsoft  vs.  Eagle Point Credit

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.

Eagle Point Credit

Risk-Adjusted Performance

Very Weak

Over the last 90 days Eagle Point Credit has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Eagle Point 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 Eagle Point

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

The idea behind Microsoft and Eagle Point Credit 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..