Correlation Between Microsoft and Altria
Can any of the company-specific risk be diversified away by investing in both Microsoft and Altria 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 Altria into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Altria Group, you can compare the effects of market volatilities on Microsoft and Altria 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 Altria. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Altria.
Diversification Opportunities for Microsoft and Altria
Very good diversification
The 3 months correlation between Microsoft and Altria is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Altria Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Altria 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 Altria. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Altria Group has no effect on the direction of Microsoft i.e., Microsoft and Altria go up and down completely randomly.
Pair Corralation between Microsoft and Altria
Given the investment horizon of 90 days Microsoft is expected to under-perform the Altria. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.14 times less risky than Altria. The stock trades about -0.04 of its potential returns per unit of risk. The Altria Group is currently generating about 0.39 of returns per unit of risk over similar time horizon. If you would invest 4,638 in Altria Group on August 30, 2024 and sell it today you would earn a total of 842.00 from holding Altria Group or generate 18.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Altria Group
Performance |
| Timeline |
| Microsoft |
| Altria Group |
Microsoft and Altria Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Altria
The main advantage of trading using opposite Microsoft and Altria positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Altria 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 Altria will offset losses from the drop in Altria's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Altria vs. CompuGroup Medical SE | Altria vs. SCANDMEDICAL SOLDK 040 | Altria vs. Diamyd Medical AB | Altria vs. ONWARD MEDICAL BV |
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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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