Correlation Between Microsoft and UNITED UTILITIES

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Can any of the company-specific risk be diversified away by investing in both Microsoft and UNITED UTILITIES 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 UNITED UTILITIES into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and UNITED UTILITIES GR, you can compare the effects of market volatilities on Microsoft and UNITED UTILITIES 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 UNITED UTILITIES. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and UNITED UTILITIES.

Diversification Opportunities for Microsoft and UNITED UTILITIES

0.62
  Correlation Coefficient

Poor diversification

The 3 months correlation between Microsoft and UNITED is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and UNITED UTILITIES GR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UNITED UTILITIES 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 UNITED UTILITIES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UNITED UTILITIES has no effect on the direction of Microsoft i.e., Microsoft and UNITED UTILITIES go up and down completely randomly.

Pair Corralation between Microsoft and UNITED UTILITIES

Assuming the 90 days trading horizon Microsoft is expected to generate 0.9 times more return on investment than UNITED UTILITIES. However, Microsoft is 1.11 times less risky than UNITED UTILITIES. It trades about 0.06 of its potential returns per unit of risk. UNITED UTILITIES GR is currently generating about 0.04 per unit of risk. If you would invest  29,765  in Microsoft on August 31, 2024 and sell it today you would earn a total of  10,225  from holding Microsoft or generate 34.35% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Microsoft  vs.  UNITED UTILITIES GR

 Performance 
       Timeline  
Microsoft 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in December 2024.
UNITED UTILITIES 

Risk-Adjusted Performance

11 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in UNITED UTILITIES GR are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, UNITED UTILITIES may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Microsoft and UNITED UTILITIES Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Microsoft and UNITED UTILITIES

The main advantage of trading using opposite Microsoft and UNITED UTILITIES positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, UNITED UTILITIES 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 UNITED UTILITIES will offset losses from the drop in UNITED UTILITIES's long position.
The idea behind Microsoft and UNITED UTILITIES GR 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.

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