Correlation Between Microsoft and BF Utilities

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

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

Diversification Opportunities for Microsoft and BF Utilities

-0.05

Correlation Coefficient

Microsoft  BF Utilities

Good diversification

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

Pair Corralation between Microsoft and BF Utilities

Given the investment horizon of 90 days Microsoft is expected to generate 7.18 times less return on investment than BF Utilities. But when comparing it to its historical volatility, Microsoft is 3.19 times less risky than BF Utilities. It trades about 0.05 of its potential returns per unit of risk. BF Utilities Limited is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  78,505  in BF Utilities Limited on August 31, 2024 and sell it today you would earn a total of  20,330  from holding BF Utilities Limited or generate 25.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Microsoft  vs.  BF Utilities Limited

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.

BF Utilities Limited

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BF Utilities Limited are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady basic indicators, BF Utilities demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and BF Utilities

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

The idea behind Microsoft and BF Utilities Limited 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.

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 Commodity Directory module to find actively traded commodities issued by global exchanges.