Correlation Between Microsoft Corp and Transat AT

Can any of the company-specific risk be diversified away by investing in both Microsoft Corp and Transat AT 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 Transat AT 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 Transat AT, you can compare the effects of market volatilities on Microsoft Corp and Transat AT 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 Transat AT. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft Corp and Transat AT.

Diversification Opportunities for Microsoft Corp and Transat AT

0.63

Correlation Coefficient

Microsoft Corp  Transat AT

Poor diversification

The 3 months correlation between Microsoft and Transat is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft Corp CDR and Transat AT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transat AT 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 Transat AT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transat AT has no effect on the direction of Microsoft Corp i.e., Microsoft Corp and Transat AT go up and down completely randomly.

Pair Corralation between Microsoft Corp and Transat AT

Assuming the 90 days trading horizon Microsoft Corp is expected to generate 2.41 times less return on investment than Transat AT. But when comparing it to its historical volatility, Microsoft Corp CDR is 2.02 times less risky than Transat AT. It trades about 0.03 of its potential returns per unit of risk. Transat AT is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  172.00  in Transat AT on October 1, 2024 and sell it today you would earn a total of  8.00  from holding Transat AT or generate 4.65% return on investment over 90 days.

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

Microsoft Corp CDR  vs.  Transat AT

Microsoft Corp CDR

Risk-Adjusted Performance

2 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft Corp CDR are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Microsoft Corp is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Transat AT

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Transat AT are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Transat AT may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Microsoft Corp and Transat AT

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

The idea behind Microsoft Corp CDR and Transat AT 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.