Correlation Between Microsoft and Xcel Energy
Can any of the company-specific risk be diversified away by investing in both Microsoft and Xcel Energy 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 Xcel Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Xcel Energy, you can compare the effects of market volatilities on Microsoft and Xcel Energy 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 Xcel Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Xcel Energy.
Diversification Opportunities for Microsoft and Xcel Energy
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Microsoft and Xcel is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Xcel Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xcel 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 Xcel Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xcel Energy has no effect on the direction of Microsoft i.e., Microsoft and Xcel Energy go up and down completely randomly.
Pair Corralation between Microsoft and Xcel Energy
Assuming the 90 days trading horizon Microsoft is expected to generate 1.02 times more return on investment than Xcel Energy. However, Microsoft is 1.02 times more volatile than Xcel Energy. It trades about 0.08 of its potential returns per unit of risk. Xcel Energy is currently generating about 0.02 per unit of risk. If you would invest 23,416 in Microsoft on August 27, 2024 and sell it today you would earn a total of 16,324 from holding Microsoft or generate 69.71% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Xcel Energy
Performance |
| Timeline |
| Microsoft |
| Xcel Energy |
Microsoft and Xcel Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Xcel Energy
The main advantage of trading using opposite Microsoft and Xcel Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Xcel Energy 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 Xcel Energy will offset losses from the drop in Xcel Energy's long position.| Microsoft vs. United Airlines Holdings | Microsoft vs. JAPAN AIRLINES | Microsoft vs. G III APPAREL GROUP | Microsoft vs. LIFENET INSURANCE CO |
| Xcel Energy vs. NextEra Energy | Xcel Energy vs. The Southern | Xcel Energy vs. VERBUND AG | Xcel Energy vs. American Electric Power |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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