Correlation Between Microsoft and Halliburton

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

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

Diversification Opportunities for Microsoft and Halliburton

0.56

Correlation Coefficient

Microsoft  Halliburton

Very weak diversification

The 3 months correlation between Microsoft and Halliburton is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Halliburton in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Halliburton 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 Halliburton. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Halliburton has no effect on the direction of Microsoft i.e., Microsoft and Halliburton go up and down completely randomly.

Pair Corralation between Microsoft and Halliburton

Given the investment horizon of 90 days Microsoft is expected to under-perform the Halliburton. In addition to that, Microsoft is 1.01 times more volatile than Halliburton. It trades about -0.16 of its total potential returns per unit of risk. Halliburton is currently generating about -0.13 per unit of volatility. If you would invest  3,993  in Halliburton on January 30, 2024 and sell it today you would lose (139.00) from holding Halliburton or give up 3.48% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Microsoft  vs.  Halliburton

Microsoft

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Microsoft has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Halliburton

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Halliburton are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Halliburton is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Microsoft and Halliburton

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

The idea behind Microsoft and Halliburton 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.

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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.