Correlation Between Microsoft and Renewal Fuels

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

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

Diversification Opportunities for Microsoft and Renewal Fuels

-0.43

Correlation Coefficient

Microsoft  Renewal Fuels

Very good diversification

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

Pair Corralation between Microsoft and Renewal Fuels

Given the investment horizon of 90 days Microsoft is expected to generate 0.11 times more return on investment than Renewal Fuels. However, Microsoft is 9.26 times less risky than Renewal Fuels. It trades about 0.04 of its potential returns per unit of risk. Renewal Fuels is currently generating about -0.13 per unit of risk. If you would invest  41,794  in Microsoft on October 20, 2024 and sell it today you would earn a total of  1,109  from holding Microsoft or generate 2.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Microsoft  vs.  Renewal Fuels

Microsoft

Risk-Adjusted Performance

2 of 100

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.

Renewal Fuels

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Renewal Fuels has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Microsoft and Renewal Fuels

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

The idea behind Microsoft and Renewal Fuels 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.