Correlation Between Microsoft and Tal Lanka

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

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

Diversification Opportunities for Microsoft and Tal Lanka

0.05

Correlation Coefficient

Microsoft  Tal Lanka

Significant diversification

The 3 months correlation between Microsoft and Tal is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Tal Lanka Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tal Lanka Hotels 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 Tal Lanka. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tal Lanka Hotels has no effect on the direction of Microsoft i.e., Microsoft and Tal Lanka go up and down completely randomly.

Pair Corralation between Microsoft and Tal Lanka

Given the investment horizon of 90 days Microsoft is expected to under-perform the Tal Lanka. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.68 times less risky than Tal Lanka. The stock trades about -0.11 of its potential returns per unit of risk. The Tal Lanka Hotels is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  2,290  in Tal Lanka Hotels on December 28, 2024 and sell it today you would lose (180.00) from holding Tal Lanka Hotels or give up 7.86% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	93.44%
Values	Daily Returns

Microsoft  vs.  Tal Lanka Hotels

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.

Tal Lanka Hotels

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tal Lanka Hotels has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Microsoft and Tal Lanka

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

The idea behind Microsoft and Tal Lanka Hotels 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.