Correlation Between Microsoft and Capital Drilling

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

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

Diversification Opportunities for Microsoft and Capital Drilling

0.11

Correlation Coefficient

Microsoft  Capital Drilling

Average diversification

The 3 months correlation between Microsoft and Capital is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Capital Drilling in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Drilling 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 Capital Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Drilling has no effect on the direction of Microsoft i.e., Microsoft and Capital Drilling go up and down completely randomly.

Pair Corralation between Microsoft and Capital Drilling

Given the investment horizon of 90 days Microsoft is expected to under-perform the Capital Drilling. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 2.14 times less risky than Capital Drilling. The stock trades about -0.14 of its potential returns per unit of risk. The Capital Drilling is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest  8,839  in Capital Drilling on January 26, 2024 and sell it today you would earn a total of  1,461  from holding Capital Drilling or generate 16.53% return on investment over 90 days.

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

Microsoft  vs.  Capital Drilling

Microsoft

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 1 (%) 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.

Capital Drilling

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Drilling are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Capital Drilling unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Capital Drilling

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

The idea behind Microsoft and Capital Drilling 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.