Correlation Between Microsoft and Brent Crude
Can any of the company-specific risk be diversified away by investing in both Microsoft and Brent Crude 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 Brent Crude into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Brent Crude Oil, you can compare the effects of market volatilities on Microsoft and Brent Crude 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 Brent Crude. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Brent Crude.
Diversification Opportunities for Microsoft and Brent Crude
-0.26 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Microsoft and Brent is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Brent Crude Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brent Crude Oil 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 Brent Crude. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brent Crude Oil has no effect on the direction of Microsoft i.e., Microsoft and Brent Crude go up and down completely randomly.
Pair Corralation between Microsoft and Brent Crude
Given the investment horizon of 90 days Microsoft is expected to under-perform the Brent Crude. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.17 times less risky than Brent Crude. The stock trades about -0.06 of its potential returns per unit of risk. The Brent Crude Oil is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest 7,563 in Brent Crude Oil on August 26, 2024 and sell it today you would lose (104.00) from holding Brent Crude Oil or give up 1.38% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Brent Crude Oil
Performance |
| Timeline |
| Microsoft |
| Brent Crude Oil |
Microsoft and Brent Crude Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Brent Crude
The main advantage of trading using opposite Microsoft and Brent Crude positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Brent Crude 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 Brent Crude will offset losses from the drop in Brent Crude's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Brent Crude vs. Micro Silver Futures | Brent Crude vs. 30 Day Fed | Brent Crude vs. Mini Dow Jones | Brent Crude vs. Gasoline RBOB |
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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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