Correlation Between Microsoft and Nuveen Pennsylvania

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

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

Diversification Opportunities for Microsoft and Nuveen Pennsylvania

0.3

Correlation Coefficient

Microsoft  Nuveen Pennsylvania

Weak diversification

The 3 months correlation between Microsoft and Nuveen is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Nuveen Pennsylvania Municipal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nuveen Pennsylvania 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 Nuveen Pennsylvania. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nuveen Pennsylvania has no effect on the direction of Microsoft i.e., Microsoft and Nuveen Pennsylvania go up and down completely randomly.

Pair Corralation between Microsoft and Nuveen Pennsylvania

Given the investment horizon of 90 days Microsoft is expected to under-perform the Nuveen Pennsylvania. In addition to that, Microsoft is 3.85 times more volatile than Nuveen Pennsylvania Municipal. It trades about -0.08 of its total potential returns per unit of risk. Nuveen Pennsylvania Municipal is currently generating about 0.04 per unit of volatility. If you would invest  1,004  in Nuveen Pennsylvania Municipal on October 20, 2024 and sell it today you would earn a total of  2.00  from holding Nuveen Pennsylvania Municipal or generate 0.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.0%
Values	Daily Returns

Microsoft  vs.  Nuveen Pennsylvania Municipal

Microsoft

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 2 (%) 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.

Nuveen Pennsylvania

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nuveen Pennsylvania Municipal has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Nuveen Pennsylvania 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 Nuveen Pennsylvania

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

The idea behind Microsoft and Nuveen Pennsylvania Municipal 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.