Correlation Between Microsoft and MTU Aero
Can any of the company-specific risk be diversified away by investing in both Microsoft and MTU Aero 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 MTU Aero into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and MTU Aero Engines, you can compare the effects of market volatilities on Microsoft and MTU Aero 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 MTU Aero. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and MTU Aero.
Diversification Opportunities for Microsoft and MTU Aero
Modest diversification
The 3 months correlation between Microsoft and MTU is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and MTU Aero Engines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MTU Aero Engines 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 MTU Aero. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MTU Aero Engines has no effect on the direction of Microsoft i.e., Microsoft and MTU Aero go up and down completely randomly.
Pair Corralation between Microsoft and MTU Aero
Given the investment horizon of 90 days Microsoft is expected to generate 0.82 times more return on investment than MTU Aero. However, Microsoft is 1.23 times less risky than MTU Aero. It trades about 0.08 of its potential returns per unit of risk. MTU Aero Engines is currently generating about 0.05 per unit of risk. If you would invest 24,470 in Microsoft on November 29, 2024 and sell it today you would earn a total of 15,503 from holding Microsoft or generate 63.36% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. MTU Aero Engines
Performance |
| Timeline |
| Microsoft |
| MTU Aero Engines |
Microsoft and MTU Aero Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and MTU Aero
The main advantage of trading using opposite Microsoft and MTU Aero positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, MTU Aero 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 MTU Aero will offset losses from the drop in MTU Aero's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Adobe Systems Incorporated | Microsoft vs. Crowdstrike Holdings |
| MTU Aero vs. Safran SA | MTU Aero vs. MTU Aero Engines | MTU Aero vs. Thales SA ADR | MTU Aero vs. Hannover Re |
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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