Correlation Between Microsoft and NEXON

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

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

Diversification Opportunities for Microsoft and NEXON

0.53

Correlation Coefficient

Microsoft  NEXON

Very weak diversification

The 3 months correlation between Microsoft and NEXON is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and NEXON Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NEXON 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 NEXON. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NEXON has no effect on the direction of Microsoft i.e., Microsoft and NEXON go up and down completely randomly.

Pair Corralation between Microsoft and NEXON

Assuming the 90 days trading horizon Microsoft is expected to under-perform the NEXON. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.84 times less risky than NEXON. The stock trades about -0.14 of its potential returns per unit of risk. The NEXON Co is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  1,370  in NEXON Co on December 30, 2024 and sell it today you would lose (110.00) from holding NEXON Co or give up 8.03% of portfolio value over 90 days.

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

Microsoft  vs.  NEXON Co

Microsoft

Risk-Adjusted Performance

Very Weak

Over the last 90 days Microsoft has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

NEXON

Risk-Adjusted Performance

Very Weak

Over the last 90 days NEXON Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, NEXON is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Microsoft and NEXON

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

The idea behind Microsoft and NEXON Co 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.