Can any of the company-specific risk be diversified away by investing in both Microsoft Corp and Baytex 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 Corp and Baytex Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft Corp CDR and Baytex Energy Corp, you can compare the effects of market volatilities on Microsoft Corp and Baytex 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 Corp with a short position of Baytex Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft Corp and Baytex Energy.
Diversification Opportunities for Microsoft Corp and Baytex Energy
The 3 months correlation between Microsoft and Baytex is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft Corp CDR and Baytex Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baytex Energy Corp and Microsoft Corp 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 Corp CDR are associated (or correlated) with Baytex Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baytex Energy Corp has no effect on the direction of Microsoft Corp i.e., Microsoft Corp and Baytex Energy go up and down completely randomly.
Pair Corralation between Microsoft Corp and Baytex Energy
Assuming the 90 days trading horizon Microsoft Corp CDR is expected to generate 0.4 times more return on investment than Baytex Energy. However, Microsoft Corp CDR is 2.47 times less risky than Baytex Energy. It trades about 0.01 of its potential returns per unit of risk. Baytex Energy Corp is currently generating about -0.14 per unit of risk. If you would invest 3,046 in Microsoft Corp CDR on March 6, 2024 and sell it today you would earn a total of 0.00 from holding Microsoft Corp CDR or generate 0.0% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft Corp CDR are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Microsoft Corp is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.
Compared to the overall equity markets, risk-adjusted returns on investments in Baytex Energy Corp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal technical and fundamental indicators, Baytex Energy may actually be approaching a critical reversion point that can send shares even higher in July 2024.