Correlation Between Microsoft and Loews Corp

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

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

Diversification Opportunities for Microsoft and Loews Corp

0.76

Correlation Coefficient

Microsoft  Loews Corp

Poor diversification

The 3 months correlation between Microsoft and Loews is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Loews Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Loews Corp 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 Loews Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Loews Corp has no effect on the direction of Microsoft i.e., Microsoft and Loews Corp go up and down completely randomly.

Pair Corralation between Microsoft and Loews Corp

Assuming the 90 days trading horizon Microsoft is expected to generate 1.17 times more return on investment than Loews Corp. However, Microsoft is 1.17 times more volatile than Loews Corp. It trades about 0.09 of its potential returns per unit of risk. Loews Corp is currently generating about 0.07 per unit of risk. If you would invest  21,744  in Microsoft on October 11, 2024 and sell it today you would earn a total of  19,386  from holding Microsoft or generate 89.16% return on investment over 90 days.

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

Microsoft  vs.  Loews Corp

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 very unsteady technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Loews Corp

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Loews Corp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Loews Corp exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Loews Corp

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

The idea behind Microsoft and Loews Corp 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.