Correlation Between Microsoft and Eversource Energy

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

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

Diversification Opportunities for Microsoft and Eversource Energy

-0.46

Correlation Coefficient

Microsoft  Eversource Energy

Very good diversification

The 3 months correlation between Microsoft and Eversource is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Eversource Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eversource 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 Eversource Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eversource Energy has no effect on the direction of Microsoft i.e., Microsoft and Eversource Energy go up and down completely randomly.

Pair Corralation between Microsoft and Eversource Energy

Given the investment horizon of 90 days Microsoft is expected to under-perform the Eversource Energy. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.19 times less risky than Eversource Energy. The stock trades about -0.11 of its potential returns per unit of risk. The Eversource Energy is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  5,388  in Eversource Energy on December 30, 2024 and sell it today you would earn a total of  262.00  from holding Eversource Energy or generate 4.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	96.88%
Values	Daily Returns

Microsoft  vs.  Eversource Energy

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.

Eversource Energy

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Eversource Energy are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Eversource Energy is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Microsoft and Eversource Energy

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

The idea behind Microsoft and Eversource 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.