Correlation Between Microsoft and Petro Usa

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

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

Diversification Opportunities for Microsoft and Petro Usa

0.0

Correlation Coefficient

Microsoft  Petro Usa

Pay attention - limited upside

The 3 months correlation between Microsoft and Petro is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Petro Usa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Petro Usa 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 Petro Usa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Petro Usa has no effect on the direction of Microsoft i.e., Microsoft and Petro Usa go up and down completely randomly.

Pair Corralation between Microsoft and Petro Usa

Given the investment horizon of 90 days Microsoft is expected to generate 27.61 times less return on investment than Petro Usa. But when comparing it to its historical volatility, Microsoft is 40.75 times less risky than Petro Usa. It trades about 0.1 of its potential returns per unit of risk. Petro Usa is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  800.00  in Petro Usa on September 25, 2024 and sell it today you would lose (300.00) from holding Petro Usa or give up 37.5% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Microsoft  vs.  Petro Usa

Microsoft

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 1 (%) 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 current stock price uproar, may contribute to short-horizon losses for the private investors.

Petro Usa

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Petro Usa has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively steady basic indicators, Petro Usa is not utilizing all of its potentials. The recent stock price chaos, may contribute to medium-term losses for the stakeholders.

Pair Trading with Microsoft and Petro Usa

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

The idea behind Microsoft and Petro Usa 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.