Correlation Between Microsoft and NTT DATA
Can any of the company-specific risk be diversified away by investing in both Microsoft and NTT DATA 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 NTT DATA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and NTT DATA , you can compare the effects of market volatilities on Microsoft and NTT DATA 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 NTT DATA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and NTT DATA.
Diversification Opportunities for Microsoft and NTT DATA
Poor diversification
The 3 months correlation between Microsoft and NTT is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and NTT DATA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NTT DATA 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 NTT DATA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NTT DATA has no effect on the direction of Microsoft i.e., Microsoft and NTT DATA go up and down completely randomly.
Pair Corralation between Microsoft and NTT DATA
Assuming the 90 days trading horizon Microsoft is expected to generate 3.84 times less return on investment than NTT DATA. But when comparing it to its historical volatility, Microsoft is 1.68 times less risky than NTT DATA. It trades about 0.04 of its potential returns per unit of risk. NTT DATA is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 1,390 in NTT DATA on September 1, 2024 and sell it today you would earn a total of 410.00 from holding NTT DATA or generate 29.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.24% |
| Values | Daily Returns |
Microsoft vs. NTT DATA
Performance |
| Timeline |
| Microsoft |
| NTT DATA |
Microsoft and NTT DATA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and NTT DATA
The main advantage of trading using opposite Microsoft and NTT DATA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, NTT DATA 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 NTT DATA will offset losses from the drop in NTT DATA's long position.| Microsoft vs. Iridium Communications | Microsoft vs. MITSUBISHI STEEL MFG | Microsoft vs. Nippon Steel | Microsoft vs. Verizon Communications |
| NTT DATA vs. ELMOS SEMICONDUCTOR | NTT DATA vs. Taiwan Semiconductor Manufacturing | NTT DATA vs. MHP Hotel AG | NTT DATA vs. ON SEMICONDUCTOR |
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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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