Correlation Between Microsoft and United Airlines
Can any of the company-specific risk be diversified away by investing in both Microsoft and United Airlines 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 United Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and United Airlines Holdings, you can compare the effects of market volatilities on Microsoft and United Airlines 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 United Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and United Airlines.
Diversification Opportunities for Microsoft and United Airlines
0.16 | Correlation Coefficient |
Average diversification
The 3 months correlation between Microsoft and United is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and United Airlines Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Airlines Holdings 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 United Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Airlines Holdings has no effect on the direction of Microsoft i.e., Microsoft and United Airlines go up and down completely randomly.
Pair Corralation between Microsoft and United Airlines
Assuming the 90 days trading horizon Microsoft is expected to generate 14.82 times less return on investment than United Airlines. But when comparing it to its historical volatility, Microsoft is 1.92 times less risky than United Airlines. It trades about 0.02 of its potential returns per unit of risk. United Airlines Holdings is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest 5,269 in United Airlines Holdings on September 1, 2024 and sell it today you would earn a total of 4,371 from holding United Airlines Holdings or generate 82.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. United Airlines Holdings
Performance |
| Timeline |
| Microsoft |
| United Airlines Holdings |
Microsoft and United Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and United Airlines
The main advantage of trading using opposite Microsoft and United Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, United Airlines 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 United Airlines will offset losses from the drop in United Airlines' long position.| Microsoft vs. Melia Hotels | Microsoft vs. Host Hotels Resorts | Microsoft vs. AcadeMedia AB | Microsoft vs. Grand Vision Media |
| United Airlines vs. Uniper SE | United Airlines vs. Mulberry Group PLC | United Airlines vs. London Security Plc | United Airlines vs. Triad Group PLC |
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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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