Correlation Between Microsoft and E3 Lithium

Can any of the company-specific risk be diversified away by investing in both Microsoft and E3 Lithium 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 E3 Lithium into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Microsoft and E3 Lithium, you can compare the effects of market volatilities on Microsoft and E3 Lithium 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 E3 Lithium. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and E3 Lithium.

Diversification Opportunities for Microsoft and E3 Lithium

-0.29

Correlation Coefficient

Microsoft  E3 Lithium

Very good diversification

The 3 months correlation between Microsoft and ETL is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and E3 Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on E3 Lithium 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 E3 Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of E3 Lithium has no effect on the direction of Microsoft i.e., Microsoft and E3 Lithium go up and down completely randomly.

Pair Corralation between Microsoft and E3 Lithium

Given the investment horizon of 90 days Microsoft is expected to generate 0.32 times more return on investment than E3 Lithium. However, Microsoft is 3.08 times less risky than E3 Lithium. It trades about 0.1 of its potential returns per unit of risk. E3 Lithium is currently generating about -0.01 per unit of risk. If you would invest  23,074  in Microsoft on September 18, 2024 and sell it today you would earn a total of  22,277  from holding Microsoft or generate 96.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Microsoft  vs.  E3 Lithium

Microsoft

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 5 (%) 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.

E3 Lithium

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days E3 Lithium has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Microsoft and E3 Lithium

The main advantage of trading using opposite Microsoft and E3 Lithium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, E3 Lithium 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 E3 Lithium will offset losses from the drop in E3 Lithium's long position.

The idea behind Microsoft and E3 Lithium 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.