Correlation Between Microsoft and NIPPON TELTEL
Can any of the company-specific risk be diversified away by investing in both Microsoft and NIPPON TELTEL 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 NIPPON TELTEL into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and NIPPON TELTEL, you can compare the effects of market volatilities on Microsoft and NIPPON TELTEL 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 NIPPON TELTEL. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and NIPPON TELTEL.
Diversification Opportunities for Microsoft and NIPPON TELTEL
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Microsoft and NIPPON is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and NIPPON TELTEL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NIPPON TELTEL 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 NIPPON TELTEL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NIPPON TELTEL has no effect on the direction of Microsoft i.e., Microsoft and NIPPON TELTEL go up and down completely randomly.
Pair Corralation between Microsoft and NIPPON TELTEL
Assuming the 90 days trading horizon Microsoft is expected to generate 1.24 times more return on investment than NIPPON TELTEL. However, Microsoft is 1.24 times more volatile than NIPPON TELTEL. It trades about 0.19 of its potential returns per unit of risk. NIPPON TELTEL is currently generating about 0.13 per unit of risk. If you would invest 38,220 in Microsoft on September 19, 2024 and sell it today you would earn a total of 5,030 from holding Microsoft or generate 13.16% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. NIPPON TELTEL
Performance |
| Timeline |
| Microsoft |
| NIPPON TELTEL |
Microsoft and NIPPON TELTEL Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and NIPPON TELTEL
The main advantage of trading using opposite Microsoft and NIPPON TELTEL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, NIPPON TELTEL 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 NIPPON TELTEL will offset losses from the drop in NIPPON TELTEL's long position.The idea behind Microsoft and NIPPON TELTEL 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.| NIPPON TELTEL vs. Tyson Foods | NIPPON TELTEL vs. DATANG INTL POW | NIPPON TELTEL vs. Thai Beverage Public | NIPPON TELTEL vs. MICRONIC MYDATA |
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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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