Correlation Between Microsoft and TITAN MACHINERY

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

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

Diversification Opportunities for Microsoft and TITAN MACHINERY

0.72

Correlation Coefficient

Microsoft  TITAN MACHINERY

Poor diversification

The 3 months correlation between Microsoft and TITAN is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and TITAN MACHINERY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TITAN MACHINERY 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 TITAN MACHINERY. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TITAN MACHINERY has no effect on the direction of Microsoft i.e., Microsoft and TITAN MACHINERY go up and down completely randomly.

Pair Corralation between Microsoft and TITAN MACHINERY

Assuming the 90 days trading horizon Microsoft is expected to generate 1.94 times less return on investment than TITAN MACHINERY. But when comparing it to its historical volatility, Microsoft is 1.88 times less risky than TITAN MACHINERY. It trades about 0.12 of its potential returns per unit of risk. TITAN MACHINERY is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1,180  in TITAN MACHINERY on September 12, 2024 and sell it today you would earn a total of  270.00  from holding TITAN MACHINERY or generate 22.88% return on investment over 90 days.

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

Microsoft  vs.  TITAN MACHINERY

Microsoft

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in January 2025.

TITAN MACHINERY

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in TITAN MACHINERY are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, TITAN MACHINERY exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and TITAN MACHINERY

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

The idea behind Microsoft and TITAN MACHINERY 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.