Correlation Between Microsoft and Clean Air

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

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

Diversification Opportunities for Microsoft and Clean Air

0.47

Correlation Coefficient

Microsoft  Clean Air

Very weak diversification

The 3 months correlation between Microsoft and Clean is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Clean Air Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Clean Air Metals 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 Clean Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Clean Air Metals has no effect on the direction of Microsoft i.e., Microsoft and Clean Air go up and down completely randomly.

Pair Corralation between Microsoft and Clean Air

Given the investment horizon of 90 days Microsoft is expected to generate 0.26 times more return on investment than Clean Air. However, Microsoft is 3.9 times less risky than Clean Air. It trades about 0.06 of its potential returns per unit of risk. Clean Air Metals is currently generating about 0.0 per unit of risk. If you would invest  26,471  in Microsoft on January 30, 2024 and sell it today you would earn a total of  14,161  from holding Microsoft or generate 53.5% return on investment over 90 days.

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

Microsoft  vs.  Clean Air Metals

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.

Clean Air Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Clean Air Metals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's primary indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Microsoft and Clean Air

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

The idea behind Microsoft and Clean Air Metals 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.