Correlation Between Microsoft and Whitehaven Coal

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

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

Diversification Opportunities for Microsoft and Whitehaven Coal

-0.58

Correlation Coefficient

Microsoft  Whitehaven Coal

Excellent diversification

The 3 months correlation between Microsoft and Whitehaven is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Whitehaven Coal Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Whitehaven Coal 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 Whitehaven Coal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Whitehaven Coal has no effect on the direction of Microsoft i.e., Microsoft and Whitehaven Coal go up and down completely randomly.

Pair Corralation between Microsoft and Whitehaven Coal

Given the investment horizon of 90 days Microsoft is expected to generate 1.97 times less return on investment than Whitehaven Coal. But when comparing it to its historical volatility, Microsoft is 1.74 times less risky than Whitehaven Coal. It trades about 0.06 of its potential returns per unit of risk. Whitehaven Coal Limited is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  357.00  in Whitehaven Coal Limited on September 20, 2024 and sell it today you would earn a total of  32.00  from holding Whitehaven Coal Limited or generate 8.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Microsoft  vs.  Whitehaven Coal Limited

Microsoft

Risk-Adjusted Performance

5 of 100

Very Weak

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.

Whitehaven Coal

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Whitehaven Coal Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Whitehaven Coal may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Microsoft and Whitehaven Coal

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

The idea behind Microsoft and Whitehaven Coal Limited 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.