Correlation Between National Grid and Microsoft

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

By analyzing existing cross correlation between National Grid PLC and Microsoft, you can compare the effects of market volatilities on National Grid and Microsoft 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 National Grid with a short position of Microsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Grid and Microsoft.

Diversification Opportunities for National Grid and Microsoft

-0.52

Correlation Coefficient

National Grid  Microsoft

Excellent diversification

The 3 months correlation between National and Microsoft is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding National Grid PLC and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and National Grid 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 National Grid PLC are associated (or correlated) with Microsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft has no effect on the direction of National Grid i.e., National Grid and Microsoft go up and down completely randomly.

Pair Corralation between National Grid and Microsoft

Assuming the 90 days trading horizon National Grid PLC is expected to under-perform the Microsoft. But the stock apears to be less risky and, when comparing its historical volatility, National Grid PLC is 1.22 times less risky than Microsoft. The stock trades about -0.04 of its potential returns per unit of risk. The Microsoft is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  39,287  in Microsoft on October 25, 2024 and sell it today you would earn a total of  3,378  from holding Microsoft or generate 8.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.33%
Values	Daily Returns

National Grid PLC  vs.  Microsoft

National Grid PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National Grid PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, National Grid is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Microsoft

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with National Grid and Microsoft

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

The idea behind National Grid PLC and Microsoft 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.