Correlation Between Microsoft and Truist Financial

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

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

Diversification Opportunities for Microsoft and Truist Financial

0.68

Correlation Coefficient

Microsoft  Truist Financial

Poor diversification

The 3 months correlation between Microsoft and Truist is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Truist Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Truist Financial 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 Truist Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Truist Financial has no effect on the direction of Microsoft i.e., Microsoft and Truist Financial go up and down completely randomly.

Pair Corralation between Microsoft and Truist Financial

Given the investment horizon of 90 days Microsoft is expected to generate 4.49 times less return on investment than Truist Financial. But when comparing it to its historical volatility, Microsoft is 1.21 times less risky than Truist Financial. It trades about 0.05 of its potential returns per unit of risk. Truist Financial is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  22,844  in Truist Financial on October 7, 2024 and sell it today you would earn a total of  4,129  from holding Truist Financial or generate 18.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

Microsoft  vs.  Truist Financial

Microsoft

Risk-Adjusted Performance

3 of 100

Insignificant

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.

Truist Financial

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Truist Financial are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, Truist Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Truist Financial

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

The idea behind Microsoft and Truist Financial 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..