Correlation Between Microsoft and HEG

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

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

Diversification Opportunities for Microsoft and HEG

0.76

Correlation Coefficient

Microsoft  HEG

Poor diversification

The 3 months correlation between Microsoft and HEG is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and HEG Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HEG Limited 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 HEG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HEG Limited has no effect on the direction of Microsoft i.e., Microsoft and HEG go up and down completely randomly.

Pair Corralation between Microsoft and HEG

Given the investment horizon of 90 days Microsoft is expected to generate 0.6 times more return on investment than HEG. However, Microsoft is 1.67 times less risky than HEG. It trades about -0.15 of its potential returns per unit of risk. HEG Limited is currently generating about -0.22 per unit of risk. If you would invest  44,244  in Microsoft on December 10, 2024 and sell it today you would lose (6,228) from holding Microsoft or give up 14.08% of portfolio value over 90 days.

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

Microsoft  vs.  HEG Limited

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 abnormal performance in the last few months, the Stock's technical and fundamental indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

HEG Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days HEG Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Microsoft and HEG

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

The idea behind Microsoft and HEG Limited 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.