Correlation Between Microsoft and ESSEX

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

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

Diversification Opportunities for Microsoft and ESSEX

-0.53

Correlation Coefficient

Microsoft  ESSEX

Excellent diversification

The 3 months correlation between Microsoft and ESSEX is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and ESSEX PORTFOLIO L in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ESSEX PORTFOLIO L 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 ESSEX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ESSEX PORTFOLIO L has no effect on the direction of Microsoft i.e., Microsoft and ESSEX go up and down completely randomly.

Pair Corralation between Microsoft and ESSEX

Given the investment horizon of 90 days Microsoft is expected to under-perform the ESSEX. In addition to that, Microsoft is 6.84 times more volatile than ESSEX PORTFOLIO L. It trades about -0.02 of its total potential returns per unit of risk. ESSEX PORTFOLIO L is currently generating about -0.01 per unit of volatility. If you would invest  9,823  in ESSEX PORTFOLIO L on September 25, 2024 and sell it today you would lose (24.00) from holding ESSEX PORTFOLIO L or give up 0.24% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	89.6%
Values	Daily Returns

Microsoft  vs.  ESSEX PORTFOLIO L

Microsoft

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 1 (%) 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.

ESSEX PORTFOLIO L

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ESSEX PORTFOLIO L has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, ESSEX is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Microsoft and ESSEX

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

The idea behind Microsoft and ESSEX PORTFOLIO L 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 Transaction History module to view history of all your transactions and understand their impact on performance.