Correlation Between Microsoft and Evolution Mining

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

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

Diversification Opportunities for Microsoft and Evolution Mining

-0.46

Correlation Coefficient

Microsoft  Evolution Mining

Very good diversification

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

Pair Corralation between Microsoft and Evolution Mining

Given the investment horizon of 90 days Microsoft is expected to under-perform the Evolution Mining. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.58 times less risky than Evolution Mining. The stock trades about -0.01 of its potential returns per unit of risk. The Evolution Mining Limited is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  297.00  in Evolution Mining Limited on November 20, 2024 and sell it today you would earn a total of  74.00  from holding Evolution Mining Limited or generate 24.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Microsoft  vs.  Evolution Mining Limited

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.

Evolution Mining

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Evolution Mining Limited are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Evolution Mining reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Evolution Mining

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

The idea behind Microsoft and Evolution Mining Limited 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.