Correlation Between Microsoft and N1RG34

Can any of the company-specific risk be diversified away by investing in both Microsoft and N1RG34 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 N1RG34 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Microsoft and N1RG34, you can compare the effects of market volatilities on Microsoft and N1RG34 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 N1RG34. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and N1RG34.

Diversification Opportunities for Microsoft and N1RG34

0.76

Correlation Coefficient

Microsoft  N1RG34

Poor diversification

The 3 months correlation between Microsoft and N1RG34 is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and N1RG34 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on N1RG34 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 N1RG34. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of N1RG34 has no effect on the direction of Microsoft i.e., Microsoft and N1RG34 go up and down completely randomly.

Pair Corralation between Microsoft and N1RG34

Assuming the 90 days trading horizon Microsoft is expected to generate 1.7 times less return on investment than N1RG34. But when comparing it to its historical volatility, Microsoft is 1.31 times less risky than N1RG34. It trades about 0.11 of its potential returns per unit of risk. N1RG34 is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  16,879  in N1RG34 on September 27, 2024 and sell it today you would earn a total of  39,521  from holding N1RG34 or generate 234.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.74%
Values	Daily Returns

Microsoft  vs.  N1RG34

Microsoft

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Microsoft sustained solid returns over the last few months and may actually be approaching a breakup point.

N1RG34

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in N1RG34 are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, N1RG34 sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and N1RG34

The main advantage of trading using opposite Microsoft and N1RG34 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, N1RG34 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 N1RG34 will offset losses from the drop in N1RG34's long position.

The idea behind Microsoft and N1RG34 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.