Correlation Between Vertex Energy and Microsoft

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

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

Diversification Opportunities for Vertex Energy and Microsoft

-0.53

Correlation Coefficient

Vertex Energy  Microsoft

Excellent diversification

The 3 months correlation between Vertex and Microsoft is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Vertex Energy and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and Vertex Energy 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 Vertex Energy 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 Vertex Energy i.e., Vertex Energy and Microsoft go up and down completely randomly.

Pair Corralation between Vertex Energy and Microsoft

Given the investment horizon of 90 days Vertex Energy is expected to under-perform the Microsoft. In addition to that, Vertex Energy is 3.33 times more volatile than Microsoft. It trades about -0.04 of its total potential returns per unit of risk. Microsoft is currently generating about 0.06 per unit of volatility. If you would invest  26,985  in Microsoft on January 26, 2024 and sell it today you would earn a total of  13,921  from holding Microsoft or generate 51.59% return on investment over 90 days.

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

Vertex Energy  vs.  Microsoft

Vertex Energy

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vertex Energy are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, Vertex Energy reported solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Vertex Energy and Microsoft

The main advantage of trading using opposite Vertex Energy and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vertex Energy 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 Vertex Energy 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.

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.