Correlation Between Microsoft and Airtel Africa

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

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

Diversification Opportunities for Microsoft and Airtel Africa

0.02

Correlation Coefficient

Microsoft  Airtel Africa

Significant diversification

The 3 months correlation between Microsoft and Airtel is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Airtel Africa Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Airtel Africa Plc 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 Airtel Africa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Airtel Africa Plc has no effect on the direction of Microsoft i.e., Microsoft and Airtel Africa go up and down completely randomly.

Pair Corralation between Microsoft and Airtel Africa

Given the investment horizon of 90 days Microsoft is expected to generate 0.37 times more return on investment than Airtel Africa. However, Microsoft is 2.73 times less risky than Airtel Africa. It trades about 0.32 of its potential returns per unit of risk. Airtel Africa Plc is currently generating about 0.1 per unit of risk. If you would invest  41,718  in Microsoft on September 12, 2024 and sell it today you would earn a total of  3,182  from holding Microsoft or generate 7.63% return on investment over 90 days.

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

Microsoft  vs.  Airtel Africa Plc

Microsoft

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. 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.

Airtel Africa Plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Airtel Africa Plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Airtel Africa is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Microsoft and Airtel Africa

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

The idea behind Microsoft and Airtel Africa Plc 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.