Correlation Between Microsoft and Enanta Pharmaceuticals

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

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

Diversification Opportunities for Microsoft and Enanta Pharmaceuticals

-0.11

Correlation Coefficient

Microsoft  Enanta Pharmaceuticals

Good diversification

The 3 months correlation between Microsoft and Enanta is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Enanta Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enanta Pharmaceuticals 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 Enanta Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enanta Pharmaceuticals has no effect on the direction of Microsoft i.e., Microsoft and Enanta Pharmaceuticals go up and down completely randomly.

Pair Corralation between Microsoft and Enanta Pharmaceuticals

Given the investment horizon of 90 days Microsoft is expected to generate 0.49 times more return on investment than Enanta Pharmaceuticals. However, Microsoft is 2.05 times less risky than Enanta Pharmaceuticals. It trades about 0.05 of its potential returns per unit of risk. Enanta Pharmaceuticals is currently generating about -0.2 per unit of risk. If you would invest  40,862  in Microsoft on August 31, 2024 and sell it today you would earn a total of  1,437  from holding Microsoft or generate 3.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Microsoft  vs.  Enanta Pharmaceuticals

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.

Enanta Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Enanta Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Microsoft and Enanta Pharmaceuticals

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

The idea behind Microsoft and Enanta Pharmaceuticals 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.