Correlation Between Microsoft and Japan Airport

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

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

Diversification Opportunities for Microsoft and Japan Airport

0.61

Correlation Coefficient

Microsoft  Japan Airport

Poor diversification

The 3 months correlation between Microsoft and Japan is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Japan Airport Terminal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Japan Airport Terminal 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 Japan Airport. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Japan Airport Terminal has no effect on the direction of Microsoft i.e., Microsoft and Japan Airport go up and down completely randomly.

Pair Corralation between Microsoft and Japan Airport

Given the investment horizon of 90 days Microsoft is expected to generate 0.85 times more return on investment than Japan Airport. However, Microsoft is 1.17 times less risky than Japan Airport. It trades about -0.11 of its potential returns per unit of risk. Japan Airport Terminal is currently generating about -0.12 per unit of risk. If you would invest  42,398  in Microsoft on December 30, 2024 and sell it today you would lose (4,518) from holding Microsoft or give up 10.66% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Microsoft  vs.  Japan Airport Terminal

Microsoft

Risk-Adjusted Performance

Very Weak

Over the last 90 days Microsoft has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Japan Airport Terminal

Risk-Adjusted Performance

Very Weak

Over the last 90 days Japan Airport Terminal has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Microsoft and Japan Airport

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

The idea behind Microsoft and Japan Airport Terminal 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .