Correlation Between Raytheon Technologies and Microsoft

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

By analyzing existing cross correlation between Raytheon Technologies and Microsoft, you can compare the effects of market volatilities on Raytheon Technologies and Microsoft 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 Raytheon Technologies with a short position of Microsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of Raytheon Technologies and Microsoft.

Diversification Opportunities for Raytheon Technologies and Microsoft

0.57

Correlation Coefficient

Raytheon Technologies  Microsoft

Very weak diversification

The 3 months correlation between Raytheon and Microsoft is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Raytheon Technologies and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and Raytheon Technologies 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 Raytheon Technologies are associated (or correlated) with Microsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft has no effect on the direction of Raytheon Technologies i.e., Raytheon Technologies and Microsoft go up and down completely randomly.

Pair Corralation between Raytheon Technologies and Microsoft

Assuming the 90 days trading horizon Raytheon Technologies is expected to generate 1.86 times less return on investment than Microsoft. But when comparing it to its historical volatility, Raytheon Technologies is 1.03 times less risky than Microsoft. It trades about 0.07 of its potential returns per unit of risk. Microsoft is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  9,972  in Microsoft on September 12, 2024 and sell it today you would earn a total of  1,224  from holding Microsoft or generate 12.27% return on investment over 90 days.

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

Raytheon Technologies  vs.  Microsoft

Raytheon Technologies

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Raytheon Technologies are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Raytheon Technologies may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Microsoft

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Raytheon Technologies and Microsoft

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

The idea behind Raytheon Technologies and Microsoft 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.

Check out your portfolio center.

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.