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 Value, 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

0.19

Correlation Coefficient

Microsoft  Transamerica Large

Average diversification

The 3 months correlation between Microsoft and Transamerica is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Transamerica Large Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transamerica Large Value 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 Value 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 2.2 times more return on investment than Transamerica Large. However, Microsoft is 2.2 times more volatile than Transamerica Large Value. It trades about 0.07 of its potential returns per unit of risk. Transamerica Large Value is currently generating about 0.12 per unit of risk. If you would invest  42,995  in Microsoft on September 18, 2024 and sell it today you would earn a total of  2,164  from holding Microsoft or generate 5.03% 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 Value

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 current stock price uproar, may contribute to short-horizon losses for the private investors.

Transamerica Large Value

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Transamerica Large Value are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Transamerica Large is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the 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 Value 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 Search module to search for actively traded equities including funds and ETFs from over 30 global markets.