Correlation Between Microsoft and Vistra Corp

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

By analyzing existing cross correlation between Microsoft and Vistra Corp, you can compare the effects of market volatilities on Microsoft and Vistra 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 Microsoft with a short position of Vistra Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Vistra Corp.

Diversification Opportunities for Microsoft and Vistra Corp

0.22

Correlation Coefficient

Microsoft  Vistra Corp

Modest diversification

The 3 months correlation between Microsoft and Vistra is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Vistra Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vistra Corp 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 Vistra Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vistra Corp has no effect on the direction of Microsoft i.e., Microsoft and Vistra Corp go up and down completely randomly.

Pair Corralation between Microsoft and Vistra Corp

Given the investment horizon of 90 days Microsoft is expected to generate 19.79 times less return on investment than Vistra Corp. But when comparing it to its historical volatility, Microsoft is 2.78 times less risky than Vistra Corp. It trades about 0.02 of its potential returns per unit of risk. Vistra Corp is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  10,083  in Vistra Corp on September 22, 2024 and sell it today you would earn a total of  2,880  from holding Vistra Corp or generate 28.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

Microsoft  vs.  Vistra Corp

Microsoft

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Vistra Corp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vistra Corp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Vistra Corp reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Vistra Corp

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

The idea behind Microsoft and Vistra Corp 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 Commodity Directory module to find actively traded commodities issued by global exchanges.