Correlation Between Microsoft and LATAM Airlines
Can any of the company-specific risk be diversified away by investing in both Microsoft and LATAM 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 LATAM Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and LATAM Airlines Group, you can compare the effects of market volatilities on Microsoft and LATAM 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 LATAM Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and LATAM Airlines.
Diversification Opportunities for Microsoft and LATAM Airlines
0.05 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Microsoft and LATAM is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and LATAM Airlines Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LATAM Airlines Group 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 LATAM Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LATAM Airlines Group has no effect on the direction of Microsoft i.e., Microsoft and LATAM Airlines go up and down completely randomly.
Pair Corralation between Microsoft and LATAM Airlines
Given the investment horizon of 90 days Microsoft is expected to generate 2.42 times less return on investment than LATAM Airlines. But when comparing it to its historical volatility, Microsoft is 1.43 times less risky than LATAM Airlines. It trades about 0.06 of its potential returns per unit of risk. LATAM Airlines Group is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 697.00 in LATAM Airlines Group on August 31, 2024 and sell it today you would earn a total of 653.00 from holding LATAM Airlines Group or generate 93.69% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 97.59% |
| Values | Daily Returns |
Microsoft vs. LATAM Airlines Group
Performance |
| Timeline |
| Microsoft |
| LATAM Airlines Group |
Microsoft and LATAM Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and LATAM Airlines
The main advantage of trading using opposite Microsoft and LATAM Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, LATAM 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 LATAM Airlines will offset losses from the drop in LATAM Airlines' long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| LATAM Airlines vs. Falabella | LATAM Airlines vs. Cencosud | LATAM Airlines vs. Sociedad Qumica y | LATAM Airlines vs. Empresas Copec SA |
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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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