Correlation Between Microsoft and China Petroleum
Can any of the company-specific risk be diversified away by investing in both Microsoft and China Petroleum 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 China Petroleum into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and China Petroleum Chemical, you can compare the effects of market volatilities on Microsoft and China Petroleum 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 China Petroleum. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and China Petroleum.
Diversification Opportunities for Microsoft and China Petroleum
0.04 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Microsoft and China is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and China Petroleum Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Petroleum Chemical 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 China Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Petroleum Chemical has no effect on the direction of Microsoft i.e., Microsoft and China Petroleum go up and down completely randomly.
Pair Corralation between Microsoft and China Petroleum
Given the investment horizon of 90 days Microsoft is expected to generate 12.84 times less return on investment than China Petroleum. But when comparing it to its historical volatility, Microsoft is 11.9 times less risky than China Petroleum. It trades about 0.08 of its potential returns per unit of risk. China Petroleum Chemical is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 15.00 in China Petroleum Chemical on August 24, 2024 and sell it today you would earn a total of 38.00 from holding China Petroleum Chemical or generate 253.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 96.14% |
| Values | Daily Returns |
Microsoft vs. China Petroleum Chemical
Performance |
| Timeline |
| Microsoft |
| China Petroleum Chemical |
Microsoft and China Petroleum Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and China Petroleum
The main advantage of trading using opposite Microsoft and China Petroleum positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, China Petroleum 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 China Petroleum will offset losses from the drop in China Petroleum's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| China Petroleum vs. BP plc | China Petroleum vs. Shell PLC | China Petroleum vs. Origin Energy Ltd | China Petroleum vs. Equinor ASA |
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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
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