Correlation Between Microsoft and PETROLEOS

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

By analyzing existing cross correlation between Microsoft and PETROLEOS MEXICANOS 6375, you can compare the effects of market volatilities on Microsoft and PETROLEOS 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 PETROLEOS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and PETROLEOS.

Diversification Opportunities for Microsoft and PETROLEOS

0.15

Correlation Coefficient

Microsoft  PETROLEOS

Average diversification

The 3 months correlation between Microsoft and PETROLEOS is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and PETROLEOS MEXICANOS 6375 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PETROLEOS MEXICANOS 6375 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 PETROLEOS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PETROLEOS MEXICANOS 6375 has no effect on the direction of Microsoft i.e., Microsoft and PETROLEOS go up and down completely randomly.

Pair Corralation between Microsoft and PETROLEOS

Given the investment horizon of 90 days Microsoft is expected to generate 0.65 times more return on investment than PETROLEOS. However, Microsoft is 1.53 times less risky than PETROLEOS. It trades about -0.01 of its potential returns per unit of risk. PETROLEOS MEXICANOS 6375 is currently generating about -0.08 per unit of risk. If you would invest  41,466  in Microsoft on November 20, 2024 and sell it today you would lose (623.00) from holding Microsoft or give up 1.5% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.72%
Values	Daily Returns

Microsoft  vs.  PETROLEOS MEXICANOS 6375

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 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.

PETROLEOS MEXICANOS 6375

Risk-Adjusted Performance

Very Weak

Over the last 90 days PETROLEOS MEXICANOS 6375 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Bond's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for PETROLEOS MEXICANOS 6375 investors.

Pair Trading with Microsoft and PETROLEOS

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

The idea behind Microsoft and PETROLEOS MEXICANOS 6375 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.