Correlation Between Microsoft and Red Electrica
Can any of the company-specific risk be diversified away by investing in both Microsoft and Red Electrica 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 Red Electrica into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Red Electrica Corporacion, you can compare the effects of market volatilities on Microsoft and Red Electrica 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 Red Electrica. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Red Electrica.
Diversification Opportunities for Microsoft and Red Electrica
0.04 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Microsoft and Red is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Red Electrica Corporacion in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Red Electrica Corporacion 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 Red Electrica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Red Electrica Corporacion has no effect on the direction of Microsoft i.e., Microsoft and Red Electrica go up and down completely randomly.
Pair Corralation between Microsoft and Red Electrica
Given the investment horizon of 90 days Microsoft is expected to under-perform the Red Electrica. In addition to that, Microsoft is 1.14 times more volatile than Red Electrica Corporacion. It trades about -0.04 of its total potential returns per unit of risk. Red Electrica Corporacion is currently generating about 0.03 per unit of volatility. If you would invest 890.00 in Red Electrica Corporacion on August 31, 2024 and sell it today you would earn a total of 7.00 from holding Red Electrica Corporacion or generate 0.79% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Red Electrica Corporacion
Performance |
| Timeline |
| Microsoft |
| Red Electrica Corporacion |
Microsoft and Red Electrica Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Red Electrica
The main advantage of trading using opposite Microsoft and Red Electrica positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Red Electrica 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 Red Electrica will offset losses from the drop in Red Electrica's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Red Electrica vs. Southern Company | Red Electrica vs. Duke Energy | Red Electrica vs. Duke Energy | Red Electrica vs. National Grid PLC |
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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.
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