Correlation Between Microsoft and Nordic Semiconductor

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Can any of the company-specific risk be diversified away by investing in both Microsoft and Nordic Semiconductor 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 Nordic Semiconductor into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Nordic Semiconductor ASA, you can compare the effects of market volatilities on Microsoft and Nordic Semiconductor 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 Nordic Semiconductor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Nordic Semiconductor.

Diversification Opportunities for Microsoft and Nordic Semiconductor

0.09
  Correlation Coefficient

Significant diversification

The 3 months correlation between Microsoft and Nordic is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Nordic Semiconductor ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nordic Semiconductor ASA 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 Nordic Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nordic Semiconductor ASA has no effect on the direction of Microsoft i.e., Microsoft and Nordic Semiconductor go up and down completely randomly.

Pair Corralation between Microsoft and Nordic Semiconductor

Given the investment horizon of 90 days Microsoft is expected to generate 0.37 times more return on investment than Nordic Semiconductor. However, Microsoft is 2.68 times less risky than Nordic Semiconductor. It trades about 0.02 of its potential returns per unit of risk. Nordic Semiconductor ASA is currently generating about -0.15 per unit of risk. If you would invest  42,831  in Microsoft on September 24, 2024 and sell it today you would earn a total of  652.00  from holding Microsoft or generate 1.52% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy98.46%
ValuesDaily Returns

Microsoft  vs.  Nordic Semiconductor ASA

 Performance 
       Timeline  
Microsoft 

Risk-Adjusted Performance

1 of 100

 
Weak
 
Strong
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.
Nordic Semiconductor ASA 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Nordic Semiconductor ASA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak 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.

Microsoft and Nordic Semiconductor Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Microsoft and Nordic Semiconductor

The main advantage of trading using opposite Microsoft and Nordic Semiconductor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Nordic Semiconductor 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 Nordic Semiconductor will offset losses from the drop in Nordic Semiconductor's long position.
The idea behind Microsoft and Nordic Semiconductor ASA 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.
Check out your portfolio center.
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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.

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