Correlation Between Microsoft Corp and Travelers Companies

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Can any of the company-specific risk be diversified away by investing in both Microsoft Corp and Travelers Companies 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 Corp and Travelers Companies into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft Corp and The Travelers Companies, you can compare the effects of market volatilities on Microsoft Corp and Travelers Companies 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 Corp with a short position of Travelers Companies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft Corp and Travelers Companies.

Diversification Opportunities for Microsoft Corp and Travelers Companies

0.13
  Correlation Coefficient

Average diversification

The 3 months correlation between Microsoft and Travelers is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft Corp and The Travelers Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The Travelers Companies and Microsoft Corp 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 Corp are associated (or correlated) with Travelers Companies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The Travelers Companies has no effect on the direction of Microsoft Corp i.e., Microsoft Corp and Travelers Companies go up and down completely randomly.

Pair Corralation between Microsoft Corp and Travelers Companies

Given the investment horizon of 90 days Microsoft Corp is expected to generate 1.26 times more return on investment than Travelers Companies. However, Microsoft Corp is 1.26 times more volatile than The Travelers Companies. It trades about 0.04 of its potential returns per unit of risk. The Travelers Companies is currently generating about 0.04 per unit of risk. If you would invest  24,915  in Microsoft Corp on May 20, 2022 and sell it today you would earn a total of  4,217  from holding Microsoft Corp or generate 16.93% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Microsoft Corp  vs.  The Travelers Companies

 Performance (%) 
       Timeline  
Microsoft Corp 
Microsoft Performance
9 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft Corp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal technical and fundamental indicators, Microsoft Corp unveiled solid returns over the last few months and may actually be approaching a breakup point.

Microsoft Price Channel

The Travelers Companies 
Travelers Performance
3 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in The Travelers Companies are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Travelers Companies is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Travelers Price Channel

Microsoft Corp and Travelers Companies Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Microsoft Corp and Travelers Companies

The main advantage of trading using opposite Microsoft Corp and Travelers Companies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft Corp position performs unexpectedly, Travelers Companies 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 Travelers Companies will offset losses from the drop in Travelers Companies' long position.
The idea behind Microsoft Corp and The Travelers Companies pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.

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