Correlation Between Microsoft and NBCC

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

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

Diversification Opportunities for Microsoft and NBCC

0.71

Correlation Coefficient

Microsoft  NBCC

Poor diversification

The 3 months correlation between Microsoft and NBCC is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and NBCC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NBCC Limited 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 NBCC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NBCC Limited has no effect on the direction of Microsoft i.e., Microsoft and NBCC go up and down completely randomly.

Pair Corralation between Microsoft and NBCC

Given the investment horizon of 90 days Microsoft is expected to under-perform the NBCC. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 2.2 times less risky than NBCC. The stock trades about -0.09 of its potential returns per unit of risk. The NBCC Limited is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  9,248  in NBCC Limited on December 27, 2024 and sell it today you would lose (977.00) from holding NBCC Limited or give up 10.56% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

Microsoft  vs.  NBCC Limited

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 latest abnormal performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

NBCC Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days NBCC Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Microsoft and NBCC

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

The idea behind Microsoft and NBCC Limited 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.