Correlation Between Microsoft and Chevron Corp
Can any of the company-specific risk be diversified away by investing in both Microsoft and Chevron Corp 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 Chevron Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Chevron Corp, you can compare the effects of market volatilities on Microsoft and Chevron Corp 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 Chevron Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Chevron Corp.
Diversification Opportunities for Microsoft and Chevron Corp
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Microsoft and Chevron is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Chevron Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chevron Corp 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 Chevron Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chevron Corp has no effect on the direction of Microsoft i.e., Microsoft and Chevron Corp go up and down completely randomly.
Pair Corralation between Microsoft and Chevron Corp
Given the investment horizon of 90 days Microsoft is expected to under-perform the Chevron Corp. In addition to that, Microsoft is 1.25 times more volatile than Chevron Corp. It trades about -0.24 of its total potential returns per unit of risk. Chevron Corp is currently generating about 0.21 per unit of volatility. If you would invest 15,455 in Chevron Corp on January 20, 2024 and sell it today you would earn a total of 545.00 from holding Chevron Corp or generate 3.53% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.45% |
| Values | Daily Returns |
Microsoft vs. Chevron Corp
Performance |
| Timeline |
| Microsoft |
| Chevron Corp |
Microsoft and Chevron Corp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Chevron Corp
The main advantage of trading using opposite Microsoft and Chevron Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Chevron Corp 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 Chevron Corp will offset losses from the drop in Chevron Corp's long position.| Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated | Microsoft vs. Crowdstrike Holdings | Microsoft vs. Cloudflare |
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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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