Correlation Between Microsoft and Transurban

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

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

Diversification Opportunities for Microsoft and Transurban

-0.2

Correlation Coefficient

Microsoft  Transurban

Good diversification

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

Pair Corralation between Microsoft and Transurban

Given the investment horizon of 90 days Microsoft is expected to generate 0.52 times more return on investment than Transurban. However, Microsoft is 1.91 times less risky than Transurban. It trades about 0.06 of its potential returns per unit of risk. Transurban Group is currently generating about -0.08 per unit of risk. If you would invest  42,973  in Microsoft on September 13, 2024 and sell it today you would earn a total of  1,974  from holding Microsoft or generate 4.59% return on investment over 90 days.

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

Microsoft  vs.  Transurban Group

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.

Transurban Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Transurban Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak 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 Transurban

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

The idea behind Microsoft and Transurban Group 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .