Correlation Between Microsoft and Altair Engineering

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

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

Diversification Opportunities for Microsoft and Altair Engineering

0.61

Correlation Coefficient

Microsoft  Altair Engineering

Poor diversification

The 3 months correlation between Microsoft and Altair is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Altair Engineering in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Altair Engineering 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 Altair Engineering. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Altair Engineering has no effect on the direction of Microsoft i.e., Microsoft and Altair Engineering go up and down completely randomly.

Pair Corralation between Microsoft and Altair Engineering

Assuming the 90 days horizon Microsoft is expected to under-perform the Altair Engineering. In addition to that, Microsoft is 2.34 times more volatile than Altair Engineering. It trades about -0.15 of its total potential returns per unit of risk. Altair Engineering is currently generating about -0.02 per unit of volatility. If you would invest  10,400  in Altair Engineering on December 30, 2024 and sell it today you would lose (100.00) from holding Altair Engineering or give up 0.96% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.88%
Values	Daily Returns

Microsoft  vs.  Altair Engineering

Microsoft

Risk-Adjusted Performance

Very Weak

Over the last 90 days Microsoft has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Altair Engineering

Risk-Adjusted Performance

Very Weak

Over the last 90 days Altair Engineering has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Altair Engineering is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Microsoft and Altair Engineering

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

The idea behind Microsoft and Altair Engineering 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.