Correlation Between Microsoft and Whitecap Resources

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

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

Diversification Opportunities for Microsoft and Whitecap Resources

-0.02

Correlation Coefficient

Microsoft  Whitecap Resources

Good diversification

The 3 months correlation between Microsoft and Whitecap is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Whitecap Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Whitecap 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 Whitecap Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Whitecap Resources has no effect on the direction of Microsoft i.e., Microsoft and Whitecap Resources go up and down completely randomly.

Pair Corralation between Microsoft and Whitecap Resources

Given the investment horizon of 90 days Microsoft is expected to generate 0.84 times more return on investment than Whitecap Resources. However, Microsoft is 1.18 times less risky than Whitecap Resources. It trades about 0.17 of its potential returns per unit of risk. Whitecap Resources is currently generating about -0.04 per unit of risk. If you would invest  40,764  in Microsoft on September 3, 2024 and sell it today you would earn a total of  1,582  from holding Microsoft or generate 3.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Microsoft  vs.  Whitecap Resources

Microsoft

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 3 (%) 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 latest stock price uproar, may contribute to short-horizon losses for the private investors.

Whitecap Resources

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Whitecap Resources are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Whitecap Resources is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Microsoft and Whitecap Resources

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

The idea behind Microsoft and Whitecap 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..