Correlation Between Microsoft and NIIT

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

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

Diversification Opportunities for Microsoft and NIIT

0.43

Correlation Coefficient

Microsoft  NIIT

Very weak diversification

The 3 months correlation between Microsoft and NIIT is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and NIIT Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NIIT 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 NIIT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NIIT Limited has no effect on the direction of Microsoft i.e., Microsoft and NIIT go up and down completely randomly.

Pair Corralation between Microsoft and NIIT

Given the investment horizon of 90 days Microsoft is expected to generate 4.44 times less return on investment than NIIT. But when comparing it to its historical volatility, Microsoft is 3.09 times less risky than NIIT. It trades about 0.06 of its potential returns per unit of risk. NIIT Limited is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  18,485  in NIIT Limited on September 12, 2024 and sell it today you would earn a total of  2,997  from holding NIIT Limited or generate 16.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

Microsoft  vs.  NIIT Limited

Microsoft

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 4 (%) 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.

NIIT Limited

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NIIT Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak essential indicators, NIIT exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and NIIT

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

The idea behind Microsoft and NIIT 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.