Correlation Between Microsoft and Heating Oil
Can any of the company-specific risk be diversified away by investing in both Microsoft and Heating Oil 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 Heating Oil into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Heating Oil, you can compare the effects of market volatilities on Microsoft and Heating Oil 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 Heating Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Heating Oil.
Diversification Opportunities for Microsoft and Heating Oil
-0.3 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Microsoft and Heating is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Heating Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heating 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 Heating Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heating Oil has no effect on the direction of Microsoft i.e., Microsoft and Heating Oil go up and down completely randomly.
Pair Corralation between Microsoft and Heating Oil
Given the investment horizon of 90 days Microsoft is expected to generate 0.8 times more return on investment than Heating Oil. However, Microsoft is 1.25 times less risky than Heating Oil. It trades about 0.19 of its potential returns per unit of risk. Heating Oil is currently generating about -0.05 per unit of risk. If you would invest 40,554 in Microsoft on September 1, 2024 and sell it today you would earn a total of 1,792 from holding Microsoft or generate 4.42% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 91.3% |
| Values | Daily Returns |
Microsoft vs. Heating Oil
Performance |
| Timeline |
| Microsoft |
| Heating Oil |
Microsoft and Heating Oil Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Heating Oil
The main advantage of trading using opposite Microsoft and Heating Oil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Heating Oil 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 Heating Oil will offset losses from the drop in Heating Oil's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Heating Oil vs. Live Cattle Futures | Heating Oil vs. Palladium | Heating Oil vs. 30 Year Treasury | Heating Oil vs. Silver Futures |
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 Anywhere module to track or share privately all of your investments from the convenience of any device.
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