Correlation Between ATT and Microsoft

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

By analyzing existing cross correlation between ATT Inc and Microsoft, you can compare the effects of market volatilities on ATT and Microsoft 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 ATT with a short position of Microsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of ATT and Microsoft.

Diversification Opportunities for ATT and Microsoft

0.24

Correlation Coefficient

ATT  Microsoft

Modest diversification

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

Pair Corralation between ATT and Microsoft

Taking into account the 90-day investment horizon ATT Inc is expected to generate 0.91 times more return on investment than Microsoft. However, ATT Inc is 1.09 times less risky than Microsoft. It trades about -0.17 of its potential returns per unit of risk. Microsoft is currently generating about -0.19 per unit of risk. If you would invest  1,689  in ATT Inc on January 19, 2024 and sell it today you would lose (56.00) from holding ATT Inc or give up 3.32% of portfolio value over 90 days.

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

ATT Inc  vs.  Microsoft

ATT Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ATT Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, ATT is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Microsoft

Risk-Adjusted Performance

2 of 100

Insignificant

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.

Pair Trading with ATT and Microsoft

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

The idea behind ATT Inc and Microsoft 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.