Correlation Between Microsoft and Nantong Jiangshan

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

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

Diversification Opportunities for Microsoft and Nantong Jiangshan

0.24

Correlation Coefficient

Microsoft  Nantong Jiangshan

Modest diversification

The 3 months correlation between Microsoft and Nantong is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Nantong Jiangshan Agrochemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nantong Jiangshan 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 Nantong Jiangshan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nantong Jiangshan has no effect on the direction of Microsoft i.e., Microsoft and Nantong Jiangshan go up and down completely randomly.

Pair Corralation between Microsoft and Nantong Jiangshan

Given the investment horizon of 90 days Microsoft is expected to generate 3.1 times less return on investment than Nantong Jiangshan. But when comparing it to its historical volatility, Microsoft is 1.38 times less risky than Nantong Jiangshan. It trades about 0.01 of its potential returns per unit of risk. Nantong Jiangshan Agrochemical is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,395  in Nantong Jiangshan Agrochemical on October 22, 2024 and sell it today you would earn a total of  35.00  from holding Nantong Jiangshan Agrochemical or generate 2.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.88%
Values	Daily Returns

Microsoft  vs.  Nantong Jiangshan Agrochemical

Microsoft

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Nantong Jiangshan

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Nantong Jiangshan Agrochemical are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Nantong Jiangshan is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Microsoft and Nantong Jiangshan

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

The idea behind Microsoft and Nantong Jiangshan Agrochemical 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.