Correlation Between Microsoft and Transamerica Large

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

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

Diversification Opportunities for Microsoft and Transamerica Large

0.15

Correlation Coefficient

Microsoft  Transamerica Large

Average diversification

The 3 months correlation between Microsoft and Transamerica is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Transamerica Large Core in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transamerica Large Core 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 Transamerica Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transamerica Large Core has no effect on the direction of Microsoft i.e., Microsoft and Transamerica Large go up and down completely randomly.

Pair Corralation between Microsoft and Transamerica Large

Given the investment horizon of 90 days Microsoft is expected to generate 0.29 times more return on investment than Transamerica Large. However, Microsoft is 3.43 times less risky than Transamerica Large. It trades about 0.11 of its potential returns per unit of risk. Transamerica Large Core is currently generating about -0.24 per unit of risk. If you would invest  42,799  in Microsoft on September 27, 2024 and sell it today you would earn a total of  1,134  from holding Microsoft or generate 2.65% return on investment over 90 days.

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

Microsoft  vs.  Transamerica Large Core

Microsoft

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 3 (%) 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 current stock price uproar, may contribute to short-horizon losses for the private investors.

Transamerica Large Core

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Transamerica Large Core has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Microsoft and Transamerica Large

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

The idea behind Microsoft and Transamerica Large Core 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.