Correlation Between Microsoft and TransAlta

Can any of the company-specific risk be diversified away by investing in both Microsoft and TransAlta 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 TransAlta into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Microsoft and TransAlta, you can compare the effects of market volatilities on Microsoft and TransAlta 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 TransAlta. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and TransAlta.

Diversification Opportunities for Microsoft and TransAlta

0.75

Correlation Coefficient

Microsoft  TransAlta

Poor diversification

The 3 months correlation between Microsoft and TransAlta is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and TransAlta in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TransAlta 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 TransAlta. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TransAlta has no effect on the direction of Microsoft i.e., Microsoft and TransAlta go up and down completely randomly.

Pair Corralation between Microsoft and TransAlta

Assuming the 90 days trading horizon Microsoft is expected to generate 1.13 times less return on investment than TransAlta. But when comparing it to its historical volatility, Microsoft is 1.63 times less risky than TransAlta. It trades about 0.27 of its potential returns per unit of risk. TransAlta is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  769.00  in TransAlta on April 24, 2025 and sell it today you would earn a total of  269.00  from holding TransAlta or generate 34.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Microsoft  vs.  TransAlta

Microsoft

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady technical and fundamental indicators, Microsoft unveiled solid returns over the last few months and may actually be approaching a breakup point.

TransAlta

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in TransAlta are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, TransAlta reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and TransAlta

The main advantage of trading using opposite Microsoft and TransAlta positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, TransAlta 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 TransAlta will offset losses from the drop in TransAlta's long position.

The idea behind Microsoft and TransAlta 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.

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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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.