Correlation Between Microsoft and Thai Airways

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

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

Diversification Opportunities for Microsoft and Thai Airways

0.45

Correlation Coefficient

Microsoft  Thai Airways

Very weak diversification

The 3 months correlation between Microsoft and Thai is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Thai Airways International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thai Airways Interna 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 Thai Airways. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thai Airways Interna has no effect on the direction of Microsoft i.e., Microsoft and Thai Airways go up and down completely randomly.

Pair Corralation between Microsoft and Thai Airways

Given the investment horizon of 90 days Microsoft is expected to under-perform the Thai Airways. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 49.4 times less risky than Thai Airways. The stock trades about -0.11 of its potential returns per unit of risk. The Thai Airways International is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  1.00  in Thai Airways International on January 19, 2024 and sell it today you would lose (0.17) from holding Thai Airways International or give up 17.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Microsoft  vs.  Thai Airways International

Microsoft

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 4 (%) 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.

Thai Airways Interna

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Thai Airways International are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Thai Airways reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Thai Airways

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

The idea behind Microsoft and Thai Airways International 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.