Correlation Between Microsoft and Duke Energy

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

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

Diversification Opportunities for Microsoft and Duke Energy

0.1

Correlation Coefficient

Microsoft  Duke Energy

Average diversification

The 3 months correlation between Microsoft and Duke is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Duke Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Duke Energy 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 Duke Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Duke Energy has no effect on the direction of Microsoft i.e., Microsoft and Duke Energy go up and down completely randomly.

Pair Corralation between Microsoft and Duke Energy

Given the investment horizon of 90 days Microsoft is expected to generate 1.42 times more return on investment than Duke Energy. However, Microsoft is 1.42 times more volatile than Duke Energy. It trades about 0.06 of its potential returns per unit of risk. Duke Energy is currently generating about 0.0 per unit of risk. If you would invest  25,988  in Microsoft on January 29, 2024 and sell it today you would earn a total of  14,644  from holding Microsoft or generate 56.35% return on investment over 90 days.

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

Microsoft  vs.  Duke Energy

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.

Duke Energy

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Duke Energy are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Duke Energy is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Microsoft and Duke Energy

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

The idea behind Microsoft and Duke Energy 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.