Correlation Between Microsoft and ALLSTATE

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

By analyzing existing cross correlation between Microsoft and ALLSTATE P 535, you can compare the effects of market volatilities on Microsoft and ALLSTATE 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 ALLSTATE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and ALLSTATE.

Diversification Opportunities for Microsoft and ALLSTATE

-0.02

Correlation Coefficient

Microsoft  ALLSTATE

Good diversification

The 3 months correlation between Microsoft and ALLSTATE is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and ALLSTATE P 535 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ALLSTATE P 535 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 ALLSTATE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ALLSTATE P 535 has no effect on the direction of Microsoft i.e., Microsoft and ALLSTATE go up and down completely randomly.

Pair Corralation between Microsoft and ALLSTATE

Given the investment horizon of 90 days Microsoft is expected to generate 1.52 times less return on investment than ALLSTATE. In addition to that, Microsoft is 1.59 times more volatile than ALLSTATE P 535. It trades about 0.03 of its total potential returns per unit of risk. ALLSTATE P 535 is currently generating about 0.06 per unit of volatility. If you would invest  10,127  in ALLSTATE P 535 on October 7, 2024 and sell it today you would earn a total of  139.00  from holding ALLSTATE P 535 or generate 1.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	78.05%
Values	Daily Returns

Microsoft  vs.  ALLSTATE P 535

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.

ALLSTATE P 535

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ALLSTATE P 535 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, ALLSTATE is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Microsoft and ALLSTATE

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

The idea behind Microsoft and ALLSTATE P 535 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.