Correlation Between Microsoft and TT Electronics
Can any of the company-specific risk be diversified away by investing in both Microsoft and TT Electronics 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 TT Electronics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and TT Electronics PLC, you can compare the effects of market volatilities on Microsoft and TT Electronics 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 TT Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and TT Electronics.
Diversification Opportunities for Microsoft and TT Electronics
0.43 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Microsoft and 7TT is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and TT Electronics PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TT Electronics PLC 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 TT Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TT Electronics PLC has no effect on the direction of Microsoft i.e., Microsoft and TT Electronics go up and down completely randomly.
Pair Corralation between Microsoft and TT Electronics
Given the investment horizon of 90 days Microsoft is expected to generate 7.56 times less return on investment than TT Electronics. But when comparing it to its historical volatility, Microsoft is 6.12 times less risky than TT Electronics. It trades about 0.22 of its potential returns per unit of risk. TT Electronics PLC is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest 88.00 in TT Electronics PLC on September 15, 2024 and sell it today you would earn a total of 37.00 from holding TT Electronics PLC or generate 42.05% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
Microsoft vs. TT Electronics PLC
Performance |
| Timeline |
| Microsoft |
| TT Electronics PLC |
Microsoft and TT Electronics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and TT Electronics
The main advantage of trading using opposite Microsoft and TT Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, TT Electronics 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 TT Electronics will offset losses from the drop in TT Electronics' long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| TT Electronics vs. Apple Inc | TT Electronics vs. Apple Inc | TT Electronics vs. Apple Inc | TT Electronics vs. Apple Inc |
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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.
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