Correlation Between Microsoft and China Eastern

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

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

Diversification Opportunities for Microsoft and China Eastern

-0.27

Correlation Coefficient

Microsoft  China Eastern

Very good diversification

The 3 months correlation between Microsoft and China is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and China Eastern Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Eastern Airlines 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 Eastern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Eastern Airlines has no effect on the direction of Microsoft i.e., Microsoft and China Eastern go up and down completely randomly.

Pair Corralation between Microsoft and China Eastern

Given the investment horizon of 90 days Microsoft is expected to generate 2.6 times less return on investment than China Eastern. But when comparing it to its historical volatility, Microsoft is 1.52 times less risky than China Eastern. It trades about 0.05 of its potential returns per unit of risk. China Eastern Airlines is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  374.00  in China Eastern Airlines on September 2, 2024 and sell it today you would earn a total of  34.00  from holding China Eastern Airlines or generate 9.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	92.19%
Values	Daily Returns

Microsoft  vs.  China Eastern Airlines

Microsoft

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 3 (%) 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 latest stock price uproar, may contribute to short-horizon losses for the private investors.

China Eastern Airlines

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Eastern Airlines are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Eastern may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Microsoft and China Eastern

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

The idea behind Microsoft and China Eastern Airlines 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.