Correlation Between Microsoft and EAGLE MATERIALS

Can any of the company-specific risk be diversified away by investing in both Microsoft and EAGLE MATERIALS 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 EAGLE MATERIALS into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Microsoft and EAGLE MATERIALS, you can compare the effects of market volatilities on Microsoft and EAGLE MATERIALS 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 EAGLE MATERIALS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and EAGLE MATERIALS.

Diversification Opportunities for Microsoft and EAGLE MATERIALS

0.05

Correlation Coefficient

Microsoft  EAGLE MATERIALS

Significant diversification

The 3 months correlation between Microsoft and EAGLE is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and EAGLE MATERIALS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EAGLE MATERIALS 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 EAGLE MATERIALS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EAGLE MATERIALS has no effect on the direction of Microsoft i.e., Microsoft and EAGLE MATERIALS go up and down completely randomly.

Pair Corralation between Microsoft and EAGLE MATERIALS

Assuming the 90 days trading horizon Microsoft is expected to generate 0.77 times more return on investment than EAGLE MATERIALS. However, Microsoft is 1.29 times less risky than EAGLE MATERIALS. It trades about 0.11 of its potential returns per unit of risk. EAGLE MATERIALS is currently generating about -0.03 per unit of risk. If you would invest  38,264  in Microsoft on September 24, 2024 and sell it today you would earn a total of  3,886  from holding Microsoft or generate 10.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Microsoft  vs.  EAGLE MATERIALS

Microsoft

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in January 2025.

EAGLE MATERIALS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EAGLE MATERIALS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound primary indicators, EAGLE MATERIALS is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Microsoft and EAGLE MATERIALS

The main advantage of trading using opposite Microsoft and EAGLE MATERIALS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, EAGLE MATERIALS 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 EAGLE MATERIALS will offset losses from the drop in EAGLE MATERIALS's long position.

The idea behind Microsoft and EAGLE MATERIALS 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.

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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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.