Correlation Between Microsoft and ETC Group

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

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

Diversification Opportunities for Microsoft and ETC Group

0.69

Correlation Coefficient

Microsoft  ETC Group

Poor diversification

The 3 months correlation between Microsoft and ETC is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and ETC Group Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ETC Group Global 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 ETC Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ETC Group Global has no effect on the direction of Microsoft i.e., Microsoft and ETC Group go up and down completely randomly.

Pair Corralation between Microsoft and ETC Group

Given the investment horizon of 90 days Microsoft is expected to generate 5.11 times less return on investment than ETC Group. But when comparing it to its historical volatility, Microsoft is 1.21 times less risky than ETC Group. It trades about 0.05 of its potential returns per unit of risk. ETC Group Global is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  1,036  in ETC Group Global on October 7, 2024 and sell it today you would earn a total of  225.00  from holding ETC Group Global or generate 21.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Microsoft  vs.  ETC Group Global

Microsoft

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 3 (%) 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.

ETC Group Global

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ETC Group Global are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, ETC Group unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and ETC Group

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

The idea behind Microsoft and ETC Group Global 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.