Correlation Between Microsoft and MARRIOTT

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

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

Diversification Opportunities for Microsoft and MARRIOTT

-0.24

Correlation Coefficient

Microsoft  MARRIOTT

Very good diversification

The 3 months correlation between Microsoft and MARRIOTT is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and MARRIOTT INTL INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MARRIOTT INTL INC 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 MARRIOTT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MARRIOTT INTL INC has no effect on the direction of Microsoft i.e., Microsoft and MARRIOTT go up and down completely randomly.

Pair Corralation between Microsoft and MARRIOTT

Given the investment horizon of 90 days Microsoft is expected to under-perform the MARRIOTT. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.89 times less risky than MARRIOTT. The stock trades about -0.03 of its potential returns per unit of risk. The MARRIOTT INTL INC is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  9,240  in MARRIOTT INTL INC on October 13, 2024 and sell it today you would lose (450.00) from holding MARRIOTT INTL INC or give up 4.87% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	68.53%
Values	Daily Returns

Microsoft  vs.  MARRIOTT INTL INC

Microsoft

Risk-Adjusted Performance

0 of 100

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 latest stock price uproar, may contribute to short-horizon losses for the private investors.

MARRIOTT INTL INC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MARRIOTT INTL INC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Bond's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for MARRIOTT INTL INC investors.

Pair Trading with Microsoft and MARRIOTT

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

The idea behind Microsoft and MARRIOTT INTL INC 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.