Correlation Between Microsoft and Essex Property

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

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

Diversification Opportunities for Microsoft and Essex Property

-0.25

Correlation Coefficient

Microsoft  Essex Property

Very good diversification

The 3 months correlation between Microsoft and Essex is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Essex Property Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Essex Property Trust 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 Essex Property. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Essex Property Trust has no effect on the direction of Microsoft i.e., Microsoft and Essex Property go up and down completely randomly.

Pair Corralation between Microsoft and Essex Property

Given the investment horizon of 90 days Microsoft is expected to generate 0.96 times more return on investment than Essex Property. However, Microsoft is 1.04 times less risky than Essex Property. It trades about 0.05 of its potential returns per unit of risk. Essex Property Trust is currently generating about -0.12 per unit of risk. If you would invest  37,877  in Microsoft on January 12, 2025 and sell it today you would earn a total of  968.00  from holding Microsoft or generate 2.56% return on investment over 90 days.

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

Microsoft  vs.  Essex Property Trust

Microsoft

Risk-Adjusted Performance

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 recent stock price uproar, may contribute to short-horizon losses for the private investors.

Essex Property Trust

Risk-Adjusted Performance

Very Weak

Over the last 90 days Essex Property Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Essex Property is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Microsoft and Essex Property

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

The idea behind Microsoft and Essex Property Trust 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.