Correlation Between Microsoft and RMK Energy

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

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

Diversification Opportunities for Microsoft and RMK Energy

0.12

Correlation Coefficient

Microsoft  RMK Energy

Average diversification

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

Pair Corralation between Microsoft and RMK Energy

Given the investment horizon of 90 days Microsoft is expected to generate 0.69 times more return on investment than RMK Energy. However, Microsoft is 1.45 times less risky than RMK Energy. It trades about 0.43 of its potential returns per unit of risk. RMK Energy PT is currently generating about 0.04 per unit of risk. If you would invest  41,417  in Microsoft on September 16, 2024 and sell it today you would earn a total of  3,310  from holding Microsoft or generate 7.99% return on investment over 90 days.

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

Microsoft  vs.  RMK Energy PT

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.

RMK Energy PT

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days RMK Energy PT has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's forward-looking signals remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Microsoft and RMK Energy

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

The idea behind Microsoft and RMK Energy PT 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.