Correlation Between Microsoft and Talgo SA
Can any of the company-specific risk be diversified away by investing in both Microsoft and Talgo SA 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 Talgo SA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Talgo SA, you can compare the effects of market volatilities on Microsoft and Talgo SA 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 Talgo SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Talgo SA.
Diversification Opportunities for Microsoft and Talgo SA
Average diversification
The 3 months correlation between Microsoft and Talgo is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Talgo SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Talgo SA 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 Talgo SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Talgo SA has no effect on the direction of Microsoft i.e., Microsoft and Talgo SA go up and down completely randomly.
Pair Corralation between Microsoft and Talgo SA
Given the investment horizon of 90 days Microsoft is expected to under-perform the Talgo SA. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.72 times less risky than Talgo SA. The stock trades about -0.27 of its potential returns per unit of risk. The Talgo SA is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest 448.00 in Talgo SA on January 24, 2024 and sell it today you would lose (7.00) from holding Talgo SA or give up 1.56% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 95.0% |
| Values | Daily Returns |
Microsoft vs. Talgo SA
Performance |
| Timeline |
| Microsoft |
| Talgo SA |
Microsoft and Talgo SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Talgo SA
The main advantage of trading using opposite Microsoft and Talgo SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Talgo SA 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 Talgo SA will offset losses from the drop in Talgo SA's long position.| Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated | Microsoft vs. Crowdstrike Holdings | Microsoft vs. Cloudflare |
Check out your portfolio center.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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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