Correlation Between Microsoft and Environmental Clean

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

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

Diversification Opportunities for Microsoft and Environmental Clean

0.12

Correlation Coefficient

Microsoft  Environmental Clean

Average diversification

The 3 months correlation between Microsoft and Environmental is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Environmental Clean Technologi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Environmental Clean 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 Environmental Clean. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Environmental Clean has no effect on the direction of Microsoft i.e., Microsoft and Environmental Clean go up and down completely randomly.

Pair Corralation between Microsoft and Environmental Clean

Given the investment horizon of 90 days Microsoft is expected to generate 1.02 times less return on investment than Environmental Clean. But when comparing it to its historical volatility, Microsoft is 3.19 times less risky than Environmental Clean. It trades about 0.06 of its potential returns per unit of risk. Environmental Clean Technologies is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  0.20  in Environmental Clean Technologies on September 14, 2024 and sell it today you would earn a total of  0.00  from holding Environmental Clean Technologies or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Microsoft  vs.  Environmental Clean Technologi

Microsoft

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 4 (%) 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.

Environmental Clean

Risk-Adjusted Performance

1 of 100

Weak

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

Pair Trading with Microsoft and Environmental Clean

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

The idea behind Microsoft and Environmental Clean Technologies 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.