Correlation Between Microsoft and Marathon Petroleum
Can any of the company-specific risk be diversified away by investing in both Microsoft and Marathon Petroleum 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 Marathon Petroleum into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Marathon Petroleum, you can compare the effects of market volatilities on Microsoft and Marathon Petroleum 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 Marathon Petroleum. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Marathon Petroleum.
Diversification Opportunities for Microsoft and Marathon Petroleum
-0.34 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Microsoft and Marathon is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Marathon Petroleum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Marathon Petroleum 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 Marathon Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Marathon Petroleum has no effect on the direction of Microsoft i.e., Microsoft and Marathon Petroleum go up and down completely randomly.
Pair Corralation between Microsoft and Marathon Petroleum
Assuming the 90 days trading horizon Microsoft is expected to generate 0.71 times more return on investment than Marathon Petroleum. However, Microsoft is 1.41 times less risky than Marathon Petroleum. It trades about 0.08 of its potential returns per unit of risk. Marathon Petroleum is currently generating about 0.05 per unit of risk. If you would invest 22,874 in Microsoft on August 27, 2024 and sell it today you would earn a total of 16,881 from holding Microsoft or generate 73.8% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Marathon Petroleum
Performance |
| Timeline |
| Microsoft |
| Marathon Petroleum |
Microsoft and Marathon Petroleum Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Marathon Petroleum
The main advantage of trading using opposite Microsoft and Marathon Petroleum positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Marathon Petroleum 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 Marathon Petroleum will offset losses from the drop in Marathon Petroleum's long position.The idea behind Microsoft and Marathon Petroleum 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.| Marathon Petroleum vs. Apple Inc | Marathon Petroleum vs. Apple Inc | Marathon Petroleum vs. Apple Inc | Marathon Petroleum vs. Apple Inc |
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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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