Correlation Between Microsoft and SUNCOKE ENERGY
Can any of the company-specific risk be diversified away by investing in both Microsoft and SUNCOKE 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 SUNCOKE ENERGY into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and SUNCOKE ENERGY, you can compare the effects of market volatilities on Microsoft and SUNCOKE 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 SUNCOKE ENERGY. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and SUNCOKE ENERGY.
Diversification Opportunities for Microsoft and SUNCOKE ENERGY
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Microsoft and SUNCOKE is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and SUNCOKE ENERGY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SUNCOKE 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 SUNCOKE ENERGY. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SUNCOKE ENERGY has no effect on the direction of Microsoft i.e., Microsoft and SUNCOKE ENERGY go up and down completely randomly.
Pair Corralation between Microsoft and SUNCOKE ENERGY
Assuming the 90 days trading horizon Microsoft is expected to generate 2.28 times less return on investment than SUNCOKE ENERGY. But when comparing it to its historical volatility, Microsoft is 2.0 times less risky than SUNCOKE ENERGY. It trades about 0.06 of its potential returns per unit of risk. SUNCOKE ENERGY is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 817.00 in SUNCOKE ENERGY on September 5, 2024 and sell it today you would earn a total of 383.00 from holding SUNCOKE ENERGY or generate 46.88% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. SUNCOKE ENERGY
Performance |
| Timeline |
| Microsoft |
| SUNCOKE ENERGY |
Microsoft and SUNCOKE ENERGY Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and SUNCOKE ENERGY
The main advantage of trading using opposite Microsoft and SUNCOKE ENERGY positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, SUNCOKE 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 SUNCOKE ENERGY will offset losses from the drop in SUNCOKE ENERGY's long position.The idea behind Microsoft and SUNCOKE 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.| SUNCOKE ENERGY vs. TOTAL GABON | SUNCOKE ENERGY vs. Walgreens Boots Alliance | SUNCOKE ENERGY vs. Peak Resources Limited |
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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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