Correlation Between Microsoft and Templeton Emerging

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

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

Diversification Opportunities for Microsoft and Templeton Emerging

0.17

Correlation Coefficient

Microsoft  Templeton Emerging

Average diversification

The 3 months correlation between Microsoft and Templeton is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Templeton Emerging Mkt in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Templeton Emerging Mkt 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 Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Templeton Emerging Mkt has no effect on the direction of Microsoft i.e., Microsoft and Templeton Emerging go up and down completely randomly.

Pair Corralation between Microsoft and Templeton Emerging

Given the investment horizon of 90 days Microsoft is expected to under-perform the Templeton Emerging. In addition to that, Microsoft is 2.19 times more volatile than Templeton Emerging Mkt. It trades about -0.11 of its total potential returns per unit of risk. Templeton Emerging Mkt is currently generating about -0.04 per unit of volatility. If you would invest  633.00  in Templeton Emerging Mkt on December 25, 2024 and sell it today you would lose (12.00) from holding Templeton Emerging Mkt or give up 1.9% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

Microsoft  vs.  Templeton Emerging Mkt

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.

Templeton Emerging Mkt

Risk-Adjusted Performance

Very Weak

Over the last 90 days Templeton Emerging Mkt has generated negative risk-adjusted returns adding no value to fund investors. In spite of rather sound technical and fundamental indicators, Templeton Emerging is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Microsoft and Templeton Emerging

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

The idea behind Microsoft and Templeton Emerging Mkt 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.