Correlation Between Microsoft and TEXAS ROADHOUSE

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

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

Diversification Opportunities for Microsoft and TEXAS ROADHOUSE

0.53

Correlation Coefficient

Microsoft  TEXAS ROADHOUSE

Very weak diversification

The 3 months correlation between Microsoft and TEXAS is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and TEXAS ROADHOUSE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TEXAS ROADHOUSE 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 TEXAS ROADHOUSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TEXAS ROADHOUSE has no effect on the direction of Microsoft i.e., Microsoft and TEXAS ROADHOUSE go up and down completely randomly.

Pair Corralation between Microsoft and TEXAS ROADHOUSE

Assuming the 90 days trading horizon Microsoft is expected to under-perform the TEXAS ROADHOUSE. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.36 times less risky than TEXAS ROADHOUSE. The stock trades about -0.27 of its potential returns per unit of risk. The TEXAS ROADHOUSE is currently generating about -0.18 of returns per unit of risk over similar time horizon. If you would invest  18,200  in TEXAS ROADHOUSE on October 13, 2024 and sell it today you would lose (685.00) from holding TEXAS ROADHOUSE or give up 3.76% of portfolio value over 90 days.

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

Microsoft  vs.  TEXAS ROADHOUSE

Microsoft

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in February 2025.

TEXAS ROADHOUSE

Risk-Adjusted Performance

7 of 100

OK

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

Pair Trading with Microsoft and TEXAS ROADHOUSE

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

The idea behind Microsoft and TEXAS ROADHOUSE 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.