Correlation Between Microsoft and Transamerica Capital
Can any of the company-specific risk be diversified away by investing in both Microsoft and Transamerica Capital 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 Transamerica Capital into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Transamerica Capital Growth, you can compare the effects of market volatilities on Microsoft and Transamerica Capital 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 Transamerica Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Transamerica Capital.
Diversification Opportunities for Microsoft and Transamerica Capital
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Microsoft and Transamerica is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Transamerica Capital Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transamerica Capital 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 Transamerica Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transamerica Capital has no effect on the direction of Microsoft i.e., Microsoft and Transamerica Capital go up and down completely randomly.
Pair Corralation between Microsoft and Transamerica Capital
Given the investment horizon of 90 days Microsoft is expected to generate 0.75 times more return on investment than Transamerica Capital. However, Microsoft is 1.34 times less risky than Transamerica Capital. It trades about -0.27 of its potential returns per unit of risk. Transamerica Capital Growth is currently generating about -0.45 per unit of risk. If you would invest 42,286 in Microsoft on January 24, 2024 and sell it today you would lose (2,190) from holding Microsoft or give up 5.18% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Microsoft vs. Transamerica Capital Growth
Performance |
Timeline |
Microsoft |
Transamerica Capital |
Microsoft and Transamerica Capital Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Microsoft and Transamerica Capital
The main advantage of trading using opposite Microsoft and Transamerica Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Transamerica Capital 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 Transamerica Capital will offset losses from the drop in Transamerica Capital's long position.Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated | Microsoft vs. Crowdstrike Holdings | Microsoft vs. Cloudflare |
Transamerica Capital vs. Ridgeworth Innovative Growth | Transamerica Capital vs. Internet Ultrasector Profund |
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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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