Correlation Between Microsoft and Texas Gulf

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

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

Diversification Opportunities for Microsoft and Texas Gulf

0.02

Correlation Coefficient

Microsoft  Texas Gulf

Significant diversification

The 3 months correlation between Microsoft and Texas is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Texas Gulf Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Texas Gulf 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 Texas Gulf. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Texas Gulf Energy has no effect on the direction of Microsoft i.e., Microsoft and Texas Gulf go up and down completely randomly.

Pair Corralation between Microsoft and Texas Gulf

Given the investment horizon of 90 days Microsoft is expected to generate 0.73 times more return on investment than Texas Gulf. However, Microsoft is 1.37 times less risky than Texas Gulf. It trades about 0.09 of its potential returns per unit of risk. Texas Gulf Energy is currently generating about 0.05 per unit of risk. If you would invest  25,262  in Microsoft on September 26, 2024 and sell it today you would earn a total of  18,671  from holding Microsoft or generate 73.91% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.14%
Values	Daily Returns

Microsoft  vs.  Texas Gulf Energy

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.

Texas Gulf Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Texas Gulf Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Texas Gulf is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Microsoft and Texas Gulf

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

The idea behind Microsoft and Texas Gulf 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.

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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.