Correlation Between Microsoft and Nabors Industries

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

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

Diversification Opportunities for Microsoft and Nabors Industries

-0.6

Correlation Coefficient

Microsoft  Nabors Industries

Excellent diversification

The 3 months correlation between Microsoft and Nabors is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Nabors Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nabors Industries 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 Nabors Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nabors Industries has no effect on the direction of Microsoft i.e., Microsoft and Nabors Industries go up and down completely randomly.

Pair Corralation between Microsoft and Nabors Industries

Given the investment horizon of 90 days Microsoft is expected to generate 0.23 times more return on investment than Nabors Industries. However, Microsoft is 4.29 times less risky than Nabors Industries. It trades about 0.2 of its potential returns per unit of risk. Nabors Industries is currently generating about -0.38 per unit of risk. If you would invest  41,466  in Microsoft on September 21, 2024 and sell it today you would earn a total of  2,194  from holding Microsoft or generate 5.29% return on investment over 90 days.

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

Microsoft  vs.  Nabors Industries

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 current stock price uproar, may contribute to short-horizon losses for the private investors.

Nabors Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nabors Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Microsoft and Nabors Industries

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

The idea behind Microsoft and Nabors Industries 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.