Correlation Between Microsoft and Nabtesco Corp

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

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

Diversification Opportunities for Microsoft and Nabtesco Corp

0.49

Correlation Coefficient

Microsoft  Nabtesco Corp

Very weak diversification

The 3 months correlation between Microsoft and Nabtesco is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Nabtesco Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nabtesco Corp 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 Nabtesco Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nabtesco Corp has no effect on the direction of Microsoft i.e., Microsoft and Nabtesco Corp go up and down completely randomly.

Pair Corralation between Microsoft and Nabtesco Corp

Assuming the 90 days trading horizon Microsoft is expected to generate 0.66 times more return on investment than Nabtesco Corp. However, Microsoft is 1.52 times less risky than Nabtesco Corp. It trades about 0.09 of its potential returns per unit of risk. Nabtesco Corp is currently generating about -0.03 per unit of risk. If you would invest  23,750  in Microsoft on October 25, 2024 and sell it today you would earn a total of  18,595  from holding Microsoft or generate 78.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.8%
Values	Daily Returns

Microsoft  vs.  Nabtesco Corp

Microsoft

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Nabtesco Corp

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nabtesco Corp are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Nabtesco Corp unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Nabtesco Corp

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

The idea behind Microsoft and Nabtesco Corp 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.