# Correlation Between ATT and Microsoft

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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

 0.84 Correlation Coefficient

### Very poor diversification

The 3 months correlation between ATT and Microsoft is 0.84. 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 is expected to generate 1.17 times less return on investment than Microsoft. But when comparing it to its historical volatility, ATT Inc is 1.12 times less risky than Microsoft. It trades about 0.02 of its potential returns per unit of risk. Microsoft is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  32,243  in Microsoft on September 5, 2023 and sell it today you would earn a total of  5,208  from holding Microsoft or generate 16.15% return on investment over 90 days.
 Time Period 3 Months [change] Direction Moves Together Strength Strong Accuracy 100.0% Values Daily Returns

## ATT Inc  vs.  Microsoft

 Performance
 Timeline
 ATT Inc Correlation Profile

### ATT Performance

13 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in ATT Inc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, ATT unveiled solid returns over the last few months and may actually be approaching a breakup point.
 Performance Backtest Predict
 Microsoft Correlation Profile

### Microsoft Performance

11 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in January 2024.
 Performance Backtest Predict

## ATT and Microsoft Volatility Contrast

 Predicted Return Density
 Returns

## 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.
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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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