Correlation Between Microsoft and PHX Energy

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

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

Diversification Opportunities for Microsoft and PHX Energy

-0.49

Correlation Coefficient

Microsoft  PHX Energy

Very good diversification

The 3 months correlation between Microsoft and PHX is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and PHX Energy Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PHX Energy Services 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 PHX Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PHX Energy Services has no effect on the direction of Microsoft i.e., Microsoft and PHX Energy go up and down completely randomly.

Pair Corralation between Microsoft and PHX Energy

Given the investment horizon of 90 days Microsoft is expected to generate 1.57 times less return on investment than PHX Energy. But when comparing it to its historical volatility, Microsoft is 3.83 times less risky than PHX Energy. It trades about 0.1 of its potential returns per unit of risk. PHX Energy Services is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  481.00  in PHX Energy Services on September 16, 2024 and sell it today you would earn a total of  188.00  from holding PHX Energy Services or generate 39.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	90.73%
Values	Daily Returns

Microsoft  vs.  PHX Energy Services

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 current stock price uproar, may contribute to short-horizon losses for the private investors.

PHX Energy Services

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in PHX Energy Services are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical indicators, PHX Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Microsoft and PHX Energy

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

The idea behind Microsoft and PHX Energy Services 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 Valuation module to check real value of public entities based on technical and fundamental data.