Correlation Between Microsoft and Barrel Energy
Can any of the company-specific risk be diversified away by investing in both Microsoft and Barrel 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 Barrel Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Barrel Energy, you can compare the effects of market volatilities on Microsoft and Barrel 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 Barrel Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Barrel Energy.
Diversification Opportunities for Microsoft and Barrel Energy
0.11 | Correlation Coefficient |
Average diversification
The 3 months correlation between Microsoft and Barrel is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Barrel Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Barrel 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 Barrel Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Barrel Energy has no effect on the direction of Microsoft i.e., Microsoft and Barrel Energy go up and down completely randomly.
Pair Corralation between Microsoft and Barrel Energy
Given the investment horizon of 90 days Microsoft is expected to generate 42.94 times less return on investment than Barrel Energy. But when comparing it to its historical volatility, Microsoft is 14.06 times less risky than Barrel Energy. It trades about 0.02 of its potential returns per unit of risk. Barrel Energy is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 0.42 in Barrel Energy on September 3, 2024 and sell it today you would lose (0.19) from holding Barrel Energy or give up 45.24% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Barrel Energy
Performance |
| Timeline |
| Microsoft |
| Barrel Energy |
Microsoft and Barrel Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Barrel Energy
The main advantage of trading using opposite Microsoft and Barrel Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Barrel 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 Barrel Energy will offset losses from the drop in Barrel Energy's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Barrel Energy vs. CNX Resources Corp | Barrel Energy vs. MV Oil Trust | Barrel Energy vs. San Juan Basin | Barrel Energy vs. VOC Energy Trust |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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