Correlation Between Microsoft and NRG Energy
Can any of the company-specific risk be diversified away by investing in both Microsoft and NRG Energy 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 NRG Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and NRG Energy, you can compare the effects of market volatilities on Microsoft and NRG Energy 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 NRG Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and NRG Energy.
Diversification Opportunities for Microsoft and NRG Energy
0.32 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Microsoft and NRG is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and NRG Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NRG Energy 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 NRG Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NRG Energy has no effect on the direction of Microsoft i.e., Microsoft and NRG Energy go up and down completely randomly.
Pair Corralation between Microsoft and NRG Energy
Given the investment horizon of 90 days Microsoft is expected to generate 0.53 times more return on investment than NRG Energy. However, Microsoft is 1.9 times less risky than NRG Energy. It trades about 0.22 of its potential returns per unit of risk. NRG Energy is currently generating about -0.08 per unit of risk. If you would invest 41,287 in Microsoft on September 22, 2024 and sell it today you would earn a total of 2,373 from holding Microsoft or generate 5.75% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Weak |
Accuracy | 95.45% |
Values | Daily Returns |
Microsoft vs. NRG Energy
Performance |
Timeline |
Microsoft |
NRG Energy |
Microsoft and NRG Energy Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Microsoft and NRG Energy
The main advantage of trading using opposite Microsoft and NRG Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, NRG Energy 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 NRG Energy will offset losses from the drop in NRG Energy's long position.Microsoft vs. Global Blue Group | Microsoft vs. Aurora Mobile | Microsoft vs. Marqeta | Microsoft vs. Nextnav Acquisition Corp |
NRG Energy vs. Superior Plus Corp | NRG Energy vs. SIVERS SEMICONDUCTORS AB | NRG Energy vs. Norsk Hydro ASA | NRG Energy vs. Reliance Steel Aluminum |
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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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