Correlation Between Microsoft and T MOBILE

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

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

Diversification Opportunities for Microsoft and T MOBILE

0.6

Correlation Coefficient

Microsoft  T MOBILE

Poor diversification

The 3 months correlation between Microsoft and TM5 is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and T MOBILE US in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on T MOBILE US 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 T MOBILE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of T MOBILE US has no effect on the direction of Microsoft i.e., Microsoft and T MOBILE go up and down completely randomly.

Pair Corralation between Microsoft and T MOBILE

Assuming the 90 days trading horizon Microsoft is expected to under-perform the T MOBILE. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.02 times less risky than T MOBILE. The stock trades about -0.01 of its potential returns per unit of risk. The T MOBILE US is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  16,539  in T MOBILE US on September 29, 2024 and sell it today you would earn a total of  4,751  from holding T MOBILE US or generate 28.73% return on investment over 90 days.

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

Microsoft  vs.  T MOBILE US

Microsoft

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in January 2025.

T MOBILE US

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in T MOBILE US are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, T MOBILE unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and T MOBILE

The main advantage of trading using opposite Microsoft and T MOBILE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, T MOBILE 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 T MOBILE will offset losses from the drop in T MOBILE's long position.

The idea behind Microsoft and T MOBILE US 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.