Correlation Between Microsoft and Altech Batteries

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

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

Diversification Opportunities for Microsoft and Altech Batteries

-0.17

Correlation Coefficient

Microsoft  Altech Batteries

Good diversification

The 3 months correlation between Microsoft and Altech is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Altech Batteries Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Altech Batteries 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 Altech Batteries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Altech Batteries has no effect on the direction of Microsoft i.e., Microsoft and Altech Batteries go up and down completely randomly.

Pair Corralation between Microsoft and Altech Batteries

Given the investment horizon of 90 days Microsoft is expected to generate 14.39 times less return on investment than Altech Batteries. But when comparing it to its historical volatility, Microsoft is 10.2 times less risky than Altech Batteries. It trades about 0.05 of its potential returns per unit of risk. Altech Batteries Limited is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  3.00  in Altech Batteries Limited on August 31, 2024 and sell it today you would earn a total of  0.18  from holding Altech Batteries Limited or generate 6.0% return on investment over 90 days.

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

Microsoft  vs.  Altech Batteries Limited

Microsoft

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Altech Batteries

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Altech Batteries Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical indicators, Altech Batteries reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Altech Batteries

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

The idea behind Microsoft and Altech Batteries Limited 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.