Correlation Between Microsoft and FuelCell Energy

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

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

Diversification Opportunities for Microsoft and FuelCell Energy

0.43

Correlation Coefficient

Microsoft  FuelCell Energy

Very weak diversification

The 3 months correlation between Microsoft and FuelCell is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and FuelCell Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FuelCell Energy 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 FuelCell Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FuelCell Energy has no effect on the direction of Microsoft i.e., Microsoft and FuelCell Energy go up and down completely randomly.

Pair Corralation between Microsoft and FuelCell Energy

Given the investment horizon of 90 days Microsoft is expected to generate 75.88 times less return on investment than FuelCell Energy. But when comparing it to its historical volatility, Microsoft is 7.85 times less risky than FuelCell Energy. It trades about 0.01 of its potential returns per unit of risk. FuelCell Energy is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  930.00  in FuelCell Energy on October 14, 2024 and sell it today you would earn a total of  226.00  from holding FuelCell Energy or generate 24.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.77%
Values	Daily Returns

Microsoft  vs.  FuelCell Energy

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.

FuelCell Energy

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in FuelCell Energy are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, FuelCell Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and FuelCell Energy

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

The idea behind Microsoft and FuelCell Energy 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..