Correlation Between Microsoft and Chesapeake Utilities
Can any of the company-specific risk be diversified away by investing in both Microsoft and Chesapeake 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 Chesapeake Utilities into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Chesapeake Utilities, you can compare the effects of market volatilities on Microsoft and Chesapeake 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 Chesapeake Utilities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Chesapeake Utilities.
Diversification Opportunities for Microsoft and Chesapeake Utilities
0.3 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Microsoft and Chesapeake is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Chesapeake Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chesapeake 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 Chesapeake Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chesapeake Utilities has no effect on the direction of Microsoft i.e., Microsoft and Chesapeake Utilities go up and down completely randomly.
Pair Corralation between Microsoft and Chesapeake Utilities
Given the investment horizon of 90 days Microsoft is expected to generate 1.03 times more return on investment than Chesapeake Utilities. However, Microsoft is 1.03 times more volatile than Chesapeake Utilities. It trades about 0.09 of its potential returns per unit of risk. Chesapeake Utilities is currently generating about 0.03 per unit of risk. If you would invest 24,146 in Microsoft on August 30, 2024 and sell it today you would earn a total of 18,153 from holding Microsoft or generate 75.18% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Chesapeake Utilities
Performance |
| Timeline |
| Microsoft |
| Chesapeake Utilities |
Microsoft and Chesapeake Utilities Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Chesapeake Utilities
The main advantage of trading using opposite Microsoft and Chesapeake Utilities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Chesapeake 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 Chesapeake Utilities will offset losses from the drop in Chesapeake Utilities' long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Chesapeake Utilities vs. Northwest Natural Gas | Chesapeake Utilities vs. One Gas | Chesapeake Utilities vs. NewJersey Resources | Chesapeake Utilities vs. Spire 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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