Correlation Between Microsoft and Power Assets

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Can any of the company-specific risk be diversified away by investing in both Microsoft and Power Assets 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 Power Assets into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Power Assets Holdings, you can compare the effects of market volatilities on Microsoft and Power Assets 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 Power Assets. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Power Assets.

Diversification Opportunities for Microsoft and Power Assets

MicrosoftPowerDiversified AwayMicrosoftPowerDiversified Away100%
0.43
  Correlation Coefficient

Very weak diversification

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

Pair Corralation between Microsoft and Power Assets

Given the investment horizon of 90 days Microsoft is expected to generate 2.76 times less return on investment than Power Assets. But when comparing it to its historical volatility, Microsoft is 2.6 times less risky than Power Assets. It trades about 0.09 of its potential returns per unit of risk. Power Assets Holdings is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  146.00  in Power Assets Holdings on October 11, 2024 and sell it today you would earn a total of  504.00  from holding Power Assets Holdings or generate 345.21% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy99.2%
ValuesDaily Returns

Microsoft  vs.  Power Assets Holdings

 Performance 
JavaScript chart by amCharts 3.21.15OctNovDec 051015
JavaScript chart by amCharts 3.21.15MSFT HEH
       Timeline  
Microsoft 

Risk-Adjusted Performance

2 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.
JavaScript chart by amCharts 3.21.15NovDecJanDecJan410420430440450
Power Assets Holdings 

Risk-Adjusted Performance

11 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Power Assets Holdings are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Power Assets may actually be approaching a critical reversion point that can send shares even higher in February 2025.
JavaScript chart by amCharts 3.21.15NovDecJanDecJan5.85.966.16.26.36.46.56.6

Microsoft and Power Assets Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-4.16-3.12-2.07-1.030.01.032.093.154.215.27 0.050.100.150.200.25
JavaScript chart by amCharts 3.21.15MSFT HEH
       Returns  

Pair Trading with Microsoft and Power Assets

The main advantage of trading using opposite Microsoft and Power Assets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Power Assets 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 Power Assets will offset losses from the drop in Power Assets' long position.
The idea behind Microsoft and Power Assets Holdings 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.
Check out your portfolio center.
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.

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