Correlation Between Microsoft and Ethereum Classic

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

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

Diversification Opportunities for Microsoft and Ethereum Classic

0.06

Correlation Coefficient

Microsoft  Ethereum Classic

Significant diversification

The 3 months correlation between Microsoft and Ethereum is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Ethereum Classic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ethereum Classic 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 Ethereum Classic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ethereum Classic has no effect on the direction of Microsoft i.e., Microsoft and Ethereum Classic go up and down completely randomly.

Pair Corralation between Microsoft and Ethereum Classic

Given the investment horizon of 90 days Microsoft is expected to generate 16.8 times less return on investment than Ethereum Classic. But when comparing it to its historical volatility, Microsoft is 3.31 times less risky than Ethereum Classic. It trades about 0.05 of its potential returns per unit of risk. Ethereum Classic is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  1,808  in Ethereum Classic on September 3, 2024 and sell it today you would earn a total of  1,620  from holding Ethereum Classic or generate 89.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Microsoft  vs.  Ethereum Classic

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.

Ethereum Classic

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ethereum Classic are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Ethereum Classic exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Ethereum Classic

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

The idea behind Microsoft and Ethereum Classic 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.