Correlation Between Microsoft and Expand Energy
Can any of the company-specific risk be diversified away by investing in both Microsoft and Expand 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 Expand Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Expand Energy, you can compare the effects of market volatilities on Microsoft and Expand 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 Expand Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Expand Energy.
Diversification Opportunities for Microsoft and Expand Energy
-0.09 | Correlation Coefficient |
Good diversification
The 3 months correlation between Microsoft and Expand is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Expand Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Expand 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 Expand Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Expand Energy has no effect on the direction of Microsoft i.e., Microsoft and Expand Energy go up and down completely randomly.
Pair Corralation between Microsoft and Expand Energy
Given the investment horizon of 90 days Microsoft is expected to under-perform the Expand Energy. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.47 times less risky than Expand Energy. The stock trades about -0.04 of its potential returns per unit of risk. The Expand Energy is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest 7,919 in Expand Energy on August 27, 2024 and sell it today you would earn a total of 1,503 from holding Expand Energy or generate 18.98% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Insignificant |
Accuracy | 100.0% |
Values | Daily Returns |
Microsoft vs. Expand Energy
Performance |
Timeline |
Microsoft |
Expand Energy |
Microsoft and Expand Energy Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Microsoft and Expand Energy
The main advantage of trading using opposite Microsoft and Expand Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Expand 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 Expand Energy will offset losses from the drop in Expand Energy's long position.Microsoft vs. GigaCloud Technology Class | Microsoft vs. Arqit Quantum | Microsoft vs. Cemtrex | Microsoft vs. Paysafe |
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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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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