Correlation Between Microsoft and Beach Energy

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

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

Diversification Opportunities for Microsoft and Beach Energy

0.24

Correlation Coefficient

Microsoft  Beach Energy

Modest diversification

The 3 months correlation between Microsoft and Beach is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Beach Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beach Energy 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 Beach Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beach Energy has no effect on the direction of Microsoft i.e., Microsoft and Beach Energy go up and down completely randomly.

Pair Corralation between Microsoft and Beach Energy

Given the investment horizon of 90 days Microsoft is expected to generate 1.24 times less return on investment than Beach Energy. But when comparing it to its historical volatility, Microsoft is 2.39 times less risky than Beach Energy. It trades about 0.17 of its potential returns per unit of risk. Beach Energy is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  130.00  in Beach Energy on September 24, 2024 and sell it today you would earn a total of  6.00  from holding Beach Energy or generate 4.62% return on investment over 90 days.

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

Microsoft  vs.  Beach Energy

Microsoft

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 2 (%) 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.

Beach Energy

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Beach Energy are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Beach Energy unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Beach Energy

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

The idea behind Microsoft and Beach Energy 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.