Correlation Between Microsoft and CHINA WINDPOWER

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

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

Diversification Opportunities for Microsoft and CHINA WINDPOWER

-0.42

Correlation Coefficient

Microsoft  CHINA WINDPOWER

Very good diversification

The 3 months correlation between Microsoft and CHINA is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and CHINA WINDPOWER in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHINA WINDPOWER 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 CHINA WINDPOWER. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHINA WINDPOWER has no effect on the direction of Microsoft i.e., Microsoft and CHINA WINDPOWER go up and down completely randomly.

Pair Corralation between Microsoft and CHINA WINDPOWER

Assuming the 90 days trading horizon Microsoft is expected to generate 1.76 times less return on investment than CHINA WINDPOWER. But when comparing it to its historical volatility, Microsoft is 3.33 times less risky than CHINA WINDPOWER. It trades about 0.06 of its potential returns per unit of risk. CHINA WINDPOWER is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  5.31  in CHINA WINDPOWER on January 30, 2024 and sell it today you would earn a total of  1.34  from holding CHINA WINDPOWER or generate 25.24% return on investment over 90 days.

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

Microsoft  vs.  CHINA WINDPOWER

Microsoft

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 2 (%) 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 current stock price uproar, may contribute to short-horizon losses for the private investors.

CHINA WINDPOWER

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CHINA WINDPOWER has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Microsoft and CHINA WINDPOWER

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

The idea behind Microsoft and CHINA WINDPOWER 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.