Correlation Between Microsoft and TRAVELERS

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

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

Diversification Opportunities for Microsoft and TRAVELERS

-0.31

Correlation Coefficient

Microsoft  TRAVELERS

Very good diversification

The 3 months correlation between Microsoft and TRAVELERS is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and TRAVELERS PPTY CAS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TRAVELERS PPTY CAS 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 TRAVELERS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TRAVELERS PPTY CAS has no effect on the direction of Microsoft i.e., Microsoft and TRAVELERS go up and down completely randomly.

Pair Corralation between Microsoft and TRAVELERS

Given the investment horizon of 90 days Microsoft is expected to under-perform the TRAVELERS. In addition to that, Microsoft is 1.76 times more volatile than TRAVELERS PPTY CAS. It trades about -0.18 of its total potential returns per unit of risk. TRAVELERS PPTY CAS is currently generating about -0.06 per unit of volatility. If you would invest  11,214  in TRAVELERS PPTY CAS on October 10, 2024 and sell it today you would lose (80.00) from holding TRAVELERS PPTY CAS or give up 0.71% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	85.71%
Values	Daily Returns

Microsoft  vs.  TRAVELERS PPTY CAS

Microsoft

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 2 (%) 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.

TRAVELERS PPTY CAS

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Microsoft and TRAVELERS

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

The idea behind Microsoft and TRAVELERS PPTY CAS 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.