Correlation Between Microsoft and Enterprise Products

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

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

Diversification Opportunities for Microsoft and Enterprise Products

-0.56

Correlation Coefficient

Microsoft  Enterprise Products

Excellent diversification

The 3 months correlation between Microsoft and Enterprise is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Enterprise Products Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enterprise Products 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 Enterprise Products. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enterprise Products has no effect on the direction of Microsoft i.e., Microsoft and Enterprise Products go up and down completely randomly.

Pair Corralation between Microsoft and Enterprise Products

Given the investment horizon of 90 days Microsoft is expected to under-perform the Enterprise Products. In addition to that, Microsoft is 1.64 times more volatile than Enterprise Products Partners. It trades about -0.11 of its total potential returns per unit of risk. Enterprise Products Partners is currently generating about 0.18 per unit of volatility. If you would invest  3,071  in Enterprise Products Partners on December 30, 2024 and sell it today you would earn a total of  337.00  from holding Enterprise Products Partners or generate 10.97% return on investment over 90 days.

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

Microsoft  vs.  Enterprise Products Partners

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.

Enterprise Products

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Enterprise Products Partners are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Enterprise Products may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Microsoft and Enterprise Products

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

The idea behind Microsoft and Enterprise Products Partners 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 Transaction History module to view history of all your transactions and understand their impact on performance.