Correlation Between Microsoft and Talanx AG

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

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

Diversification Opportunities for Microsoft and Talanx AG

0.81

Correlation Coefficient

Microsoft  Talanx AG

Very poor diversification

The 3 months correlation between Microsoft and Talanx is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Talanx AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Talanx AG 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 Talanx AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Talanx AG has no effect on the direction of Microsoft i.e., Microsoft and Talanx AG go up and down completely randomly.

Pair Corralation between Microsoft and Talanx AG

Assuming the 90 days trading horizon Microsoft is expected to under-perform the Talanx AG. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.39 times less risky than Talanx AG. The stock trades about -0.11 of its potential returns per unit of risk. The Talanx AG is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  8,380  in Talanx AG on October 8, 2024 and sell it today you would lose (30.00) from holding Talanx AG or give up 0.36% of portfolio value over 90 days.

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

Microsoft  vs.  Talanx AG

Microsoft

Risk-Adjusted Performance

8 of 100

OK

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

Talanx AG

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Talanx AG are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Talanx AG exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Talanx AG

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

The idea behind Microsoft and Talanx AG 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.