Correlation Between Microsoft and TotalEnergies

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

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

Diversification Opportunities for Microsoft and TotalEnergies

0.07

Correlation Coefficient

Microsoft  TotalEnergies

Significant diversification

The 3 months correlation between Microsoft and TotalEnergies is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and TotalEnergies SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TotalEnergies SE 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 TotalEnergies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TotalEnergies SE has no effect on the direction of Microsoft i.e., Microsoft and TotalEnergies go up and down completely randomly.

Pair Corralation between Microsoft and TotalEnergies

Given the investment horizon of 90 days Microsoft is expected to generate 1.03 times more return on investment than TotalEnergies. However, Microsoft is 1.03 times more volatile than TotalEnergies SE. It trades about 0.08 of its potential returns per unit of risk. TotalEnergies SE is currently generating about 0.01 per unit of risk. If you would invest  25,277  in Microsoft on September 3, 2024 and sell it today you would earn a total of  17,069  from holding Microsoft or generate 67.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.02%
Values	Daily Returns

Microsoft  vs.  TotalEnergies SE

Microsoft

Risk-Adjusted Performance

3 of 100

Insignificant

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

TotalEnergies SE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TotalEnergies SE has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Microsoft and TotalEnergies

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

The idea behind Microsoft and TotalEnergies SE 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.