Correlation Between MicroSectorsTM Oil and Microsoft

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Can any of the company-specific risk be diversified away by investing in both MicroSectorsTM Oil and Microsoft 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 MicroSectorsTM Oil and Microsoft into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between MicroSectorsTM Oil Gas and Microsoft, you can compare the effects of market volatilities on MicroSectorsTM Oil and Microsoft 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 MicroSectorsTM Oil with a short position of Microsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of MicroSectorsTM Oil and Microsoft.

Diversification Opportunities for MicroSectorsTM Oil and Microsoft

-0.55
  Correlation Coefficient

Excellent diversification

The 3 months correlation between MicroSectorsTM and Microsoft is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectorsTM Oil Gas and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and MicroSectorsTM Oil 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 MicroSectorsTM Oil Gas are associated (or correlated) with Microsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft has no effect on the direction of MicroSectorsTM Oil i.e., MicroSectorsTM Oil and Microsoft go up and down completely randomly.

Pair Corralation between MicroSectorsTM Oil and Microsoft

Given the investment horizon of 90 days MicroSectorsTM Oil Gas is expected to under-perform the Microsoft. In addition to that, MicroSectorsTM Oil is 2.99 times more volatile than Microsoft. It trades about -0.03 of its total potential returns per unit of risk. Microsoft is currently generating about 0.05 per unit of volatility. If you would invest  29,169  in Microsoft on December 29, 2023 and sell it today you would earn a total of  12,974  from holding Microsoft or generate 44.48% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy99.8%
ValuesDaily Returns

MicroSectorsTM Oil Gas  vs.  Microsoft

 Performance 
       Timeline  
MicroSectorsTM Oil Gas 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days MicroSectorsTM Oil Gas has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Etf's essential indicators remain rather sound which may send shares a bit higher in April 2024. The latest tumult may also be a sign of longer-term up-swing for the fund shareholders.
Microsoft 

Risk-Adjusted Performance

12 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in April 2024.

MicroSectorsTM Oil and Microsoft Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with MicroSectorsTM Oil and Microsoft

The main advantage of trading using opposite MicroSectorsTM Oil and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MicroSectorsTM Oil position performs unexpectedly, Microsoft 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 Microsoft will offset losses from the drop in Microsoft's long position.
The idea behind MicroSectorsTM Oil Gas and Microsoft 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.

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