Correlation Between Microsoft and Enel SpA

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

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

Diversification Opportunities for Microsoft and Enel SpA

-0.06

Correlation Coefficient

Microsoft  Enel SpA

Good diversification

The 3 months correlation between Microsoft and Enel is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Enel SpA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enel SpA 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 Enel SpA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enel SpA has no effect on the direction of Microsoft i.e., Microsoft and Enel SpA go up and down completely randomly.

Pair Corralation between Microsoft and Enel SpA

Given the investment horizon of 90 days Microsoft is expected to generate 1.25 times more return on investment than Enel SpA. However, Microsoft is 1.25 times more volatile than Enel SpA. It trades about 0.09 of its potential returns per unit of risk. Enel SpA is currently generating about 0.06 per unit of risk. If you would invest  23,866  in Microsoft on October 13, 2024 and sell it today you would earn a total of  18,029  from holding Microsoft or generate 75.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.0%
Values	Daily Returns

Microsoft  vs.  Enel SpA

Microsoft

Risk-Adjusted Performance

0 of 100

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 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.

Enel SpA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Enel SpA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Enel SpA is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Microsoft and Enel SpA

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

The idea behind Microsoft and Enel SpA 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.