Correlation Between Exxon and Microsoft Corp
Can any of the company-specific risk be diversified away by investing in both Exxon and Microsoft Corp 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 Exxon and Microsoft Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between EXXON MOBIL CDR and Microsoft Corp CDR, you can compare the effects of market volatilities on Exxon and Microsoft Corp 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 Exxon with a short position of Microsoft Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Exxon and Microsoft Corp.
Diversification Opportunities for Exxon and Microsoft Corp
-0.24 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Exxon and Microsoft is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding EXXON MOBIL CDR and Microsoft Corp CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft Corp CDR and Exxon 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 EXXON MOBIL CDR are associated (or correlated) with Microsoft Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft Corp CDR has no effect on the direction of Exxon i.e., Exxon and Microsoft Corp go up and down completely randomly.
Pair Corralation between Exxon and Microsoft Corp
Assuming the 90 days trading horizon EXXON MOBIL CDR is expected to generate 0.72 times more return on investment than Microsoft Corp. However, EXXON MOBIL CDR is 1.38 times less risky than Microsoft Corp. It trades about 0.06 of its potential returns per unit of risk. Microsoft Corp CDR is currently generating about -0.04 per unit of risk. If you would invest 2,213 in EXXON MOBIL CDR on August 28, 2024 and sell it today you would earn a total of 32.00 from holding EXXON MOBIL CDR or generate 1.45% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
EXXON MOBIL CDR vs. Microsoft Corp CDR
Performance |
| Timeline |
| EXXON MOBIL CDR |
| Microsoft Corp CDR |
Exxon and Microsoft Corp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Exxon and Microsoft Corp
The main advantage of trading using opposite Exxon and Microsoft Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Exxon position performs unexpectedly, Microsoft Corp 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 Microsoft Corp will offset losses from the drop in Microsoft Corp's long position.The idea behind EXXON MOBIL CDR and Microsoft Corp CDR pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| Microsoft Corp vs. Telus Corp | Microsoft Corp vs. Toronto Dominion Bank | Microsoft Corp vs. Manulife Financial Corp | Microsoft Corp vs. Canadian Natural Resources |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
Other Complementary Tools
| My Watchlist Analysis Analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like | |
| Latest Portfolios Quick portfolio dashboard that showcases your latest portfolios | |
| Price Transformation Use Price Transformation models to analyze the depth of different equity instruments across global markets | |
| Portfolio Center All portfolio management and optimization tools to improve performance of your portfolios | |
| Portfolio Suggestion Get suggestions outside of your existing asset allocation including your own model portfolios |