Correlation Between Microsoft and Templeton Global

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

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

Diversification Opportunities for Microsoft and Templeton Global

-0.13

Correlation Coefficient

Microsoft  Templeton Global

Good diversification

The 3 months correlation between Microsoft and Templeton is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Templeton Global Smaller in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Templeton Global Smaller 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 Templeton Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Templeton Global Smaller has no effect on the direction of Microsoft i.e., Microsoft and Templeton Global go up and down completely randomly.

Pair Corralation between Microsoft and Templeton Global

Given the investment horizon of 90 days Microsoft is expected to generate 1.58 times more return on investment than Templeton Global. However, Microsoft is 1.58 times more volatile than Templeton Global Smaller. It trades about 0.1 of its potential returns per unit of risk. Templeton Global Smaller is currently generating about 0.03 per unit of risk. If you would invest  22,345  in Microsoft on September 30, 2024 and sell it today you would earn a total of  20,708  from holding Microsoft or generate 92.67% return on investment over 90 days.

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

Microsoft  vs.  Templeton Global Smaller

Microsoft

Risk-Adjusted Performance

0 of 100

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 comparatively stable technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Templeton Global Smaller

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Templeton Global Smaller has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Microsoft and Templeton Global

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

The idea behind Microsoft and Templeton Global Smaller 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.