Correlation Between Microsoft and Altria

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

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

Diversification Opportunities for Microsoft and Altria

0.49

Correlation Coefficient

Microsoft  Altria

Very weak diversification

The 3 months correlation between Microsoft and Altria is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Altria Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Altria 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 Altria. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Altria Group has no effect on the direction of Microsoft i.e., Microsoft and Altria go up and down completely randomly.

Pair Corralation between Microsoft and Altria

Assuming the 90 days trading horizon Microsoft is expected to generate 1.05 times more return on investment than Altria. However, Microsoft is 1.05 times more volatile than Altria Group. It trades about 0.15 of its potential returns per unit of risk. Altria Group is currently generating about -0.11 per unit of risk. If you would invest  41,040  in Microsoft on October 25, 2024 and sell it today you would earn a total of  1,425  from holding Microsoft or generate 3.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	94.44%
Values	Daily Returns

Microsoft  vs.  Altria Group

Microsoft

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Altria Group

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Altria Group are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile technical and fundamental indicators, Altria may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Microsoft and Altria

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

The idea behind Microsoft and Altria 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.

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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.