Correlation Between Microsoft and Isoenergy

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

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

Diversification Opportunities for Microsoft and Isoenergy

-0.2

Correlation Coefficient

Microsoft  Isoenergy

Good diversification

The 3 months correlation between Microsoft and Isoenergy is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Isoenergy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Isoenergy 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 Isoenergy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Isoenergy has no effect on the direction of Microsoft i.e., Microsoft and Isoenergy go up and down completely randomly.

Pair Corralation between Microsoft and Isoenergy

Given the investment horizon of 90 days Microsoft is expected to under-perform the Isoenergy. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 27.25 times less risky than Isoenergy. The stock trades about -0.11 of its potential returns per unit of risk. The Isoenergy is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  179.00  in Isoenergy on December 30, 2024 and sell it today you would earn a total of  557.00  from holding Isoenergy or generate 311.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	91.94%
Values	Daily Returns

Microsoft  vs.  Isoenergy

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.

Isoenergy

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Isoenergy are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Isoenergy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Isoenergy

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

The idea behind Microsoft and Isoenergy 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.