Correlation Between Microsoft and Vulcan Energy

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

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

Diversification Opportunities for Microsoft and Vulcan Energy

0.26

Correlation Coefficient

Microsoft  Vulcan Energy

Modest diversification

The 3 months correlation between Microsoft and Vulcan is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Vulcan Energy Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vulcan Energy Resources 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 Vulcan Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vulcan Energy Resources has no effect on the direction of Microsoft i.e., Microsoft and Vulcan Energy go up and down completely randomly.

Pair Corralation between Microsoft and Vulcan Energy

Given the investment horizon of 90 days Microsoft is expected to generate 26.18 times less return on investment than Vulcan Energy. But when comparing it to its historical volatility, Microsoft is 4.0 times less risky than Vulcan Energy. It trades about 0.02 of its potential returns per unit of risk. Vulcan Energy Resources is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  251.00  in Vulcan Energy Resources on September 25, 2024 and sell it today you would earn a total of  86.00  from holding Vulcan Energy Resources or generate 34.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

Microsoft  vs.  Vulcan Energy Resources

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.

Vulcan Energy Resources

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vulcan Energy Resources are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile essential indicators, Vulcan Energy unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Vulcan Energy

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

The idea behind Microsoft and Vulcan Energy Resources 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..