Correlation Between Microsoft and ESCO Technologies
Can any of the company-specific risk be diversified away by investing in both Microsoft and ESCO Technologies 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 ESCO Technologies into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and ESCO Technologies, you can compare the effects of market volatilities on Microsoft and ESCO Technologies 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 ESCO Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and ESCO Technologies.
Diversification Opportunities for Microsoft and ESCO Technologies
0.13 | Correlation Coefficient |
Average diversification
The 3 months correlation between Microsoft and ESCO is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and ESCO Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ESCO Technologies 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 ESCO Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ESCO Technologies has no effect on the direction of Microsoft i.e., Microsoft and ESCO Technologies go up and down completely randomly.
Pair Corralation between Microsoft and ESCO Technologies
Given the investment horizon of 90 days Microsoft is expected to under-perform the ESCO Technologies. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.39 times less risky than ESCO Technologies. The stock trades about -0.04 of its potential returns per unit of risk. The ESCO Technologies is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest 12,888 in ESCO Technologies on August 30, 2024 and sell it today you would earn a total of 2,001 from holding ESCO Technologies or generate 15.53% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. ESCO Technologies
Performance |
| Timeline |
| Microsoft |
| ESCO Technologies |
Microsoft and ESCO Technologies Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and ESCO Technologies
The main advantage of trading using opposite Microsoft and ESCO Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, ESCO Technologies 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 ESCO Technologies will offset losses from the drop in ESCO Technologies' long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| ESCO Technologies vs. Novanta | ESCO Technologies vs. Sono Tek Corp | ESCO Technologies vs. Itron Inc | ESCO Technologies vs. Badger Meter |
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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.
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