Correlation Between Microsoft and TMT Investments

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

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

Diversification Opportunities for Microsoft and TMT Investments

-0.2

Correlation Coefficient

Microsoft  TMT Investments

Good diversification

The 3 months correlation between Microsoft and TMT is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and TMT Investments PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TMT Investments 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 TMT Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TMT Investments PLC has no effect on the direction of Microsoft i.e., Microsoft and TMT Investments go up and down completely randomly.

Pair Corralation between Microsoft and TMT Investments

Given the investment horizon of 90 days Microsoft is expected to generate 0.43 times more return on investment than TMT Investments. However, Microsoft is 2.35 times less risky than TMT Investments. It trades about 0.23 of its potential returns per unit of risk. TMT Investments PLC is currently generating about -0.23 per unit of risk. If you would invest  42,435  in Microsoft on September 14, 2024 and sell it today you would earn a total of  2,302  from holding Microsoft or generate 5.42% return on investment over 90 days.

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

Microsoft  vs.  TMT Investments PLC

Microsoft

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 4 (%) 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.

TMT Investments PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TMT Investments PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Microsoft and TMT Investments

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

The idea behind Microsoft and TMT Investments 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.