Correlation Between Microsoft and Air Lease

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

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

Diversification Opportunities for Microsoft and Air Lease

0.12

Correlation Coefficient

Microsoft  Air Lease

Average diversification

The 3 months correlation between Microsoft and Air is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Air Lease in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air Lease 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 Air Lease. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air Lease has no effect on the direction of Microsoft i.e., Microsoft and Air Lease go up and down completely randomly.

Pair Corralation between Microsoft and Air Lease

Given the investment horizon of 90 days Microsoft is expected to generate 3.33 times less return on investment than Air Lease. But when comparing it to its historical volatility, Microsoft is 1.23 times less risky than Air Lease. It trades about 0.07 of its potential returns per unit of risk. Air Lease is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  3,919  in Air Lease on September 4, 2024 and sell it today you would earn a total of  841.00  from holding Air Lease or generate 21.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Microsoft  vs.  Air Lease

Microsoft

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 5 (%) 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.

Air Lease

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Air Lease are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, Air Lease reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Air Lease

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

The idea behind Microsoft and Air Lease 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.