Correlation Between Canadian Overseas and Microsoft

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

Diversification Opportunities for Canadian Overseas and Microsoft

-0.62
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Canadian and Microsoft is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Overseas Petroleum and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and Canadian Overseas 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 Canadian Overseas Petroleum 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 Canadian Overseas i.e., Canadian Overseas and Microsoft go up and down completely randomly.

Pair Corralation between Canadian Overseas and Microsoft

Assuming the 90 days horizon Canadian Overseas Petroleum is expected to generate 15.56 times more return on investment than Microsoft. However, Canadian Overseas is 15.56 times more volatile than Microsoft. It trades about 0.03 of its potential returns per unit of risk. Microsoft is currently generating about 0.05 per unit of risk. If you would invest  32.00  in Canadian Overseas Petroleum on December 30, 2023 and sell it today you would lose (31.80) from holding Canadian Overseas Petroleum or give up 99.37% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Canadian Overseas Petroleum  vs.  Microsoft

 Performance 
       Timeline  
Canadian Overseas 

Risk-Adjusted Performance

11 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Overseas Petroleum are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Canadian Overseas reported solid returns over the last few months and may actually be approaching a breakup point.
Microsoft 

Risk-Adjusted Performance

14 of 100

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

Canadian Overseas and Microsoft Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Canadian Overseas and Microsoft

The main advantage of trading using opposite Canadian Overseas and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Canadian Overseas 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 Canadian Overseas Petroleum 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.

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