Correlation Between Microsoft and NVIDIA
Can any of the company-specific risk be diversified away by investing in both Microsoft and NVIDIA 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 NVIDIA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and NVIDIA, you can compare the effects of market volatilities on Microsoft and NVIDIA 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 NVIDIA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and NVIDIA.
Diversification Opportunities for Microsoft and NVIDIA
Very weak diversification
The 3 months correlation between Microsoft and NVIDIA is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and NVIDIA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NVIDIA 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 NVIDIA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NVIDIA has no effect on the direction of Microsoft i.e., Microsoft and NVIDIA go up and down completely randomly.
Pair Corralation between Microsoft and NVIDIA
Assuming the 90 days trading horizon Microsoft is expected to generate 0.72 times more return on investment than NVIDIA. However, Microsoft is 1.39 times less risky than NVIDIA. It trades about 0.11 of its potential returns per unit of risk. NVIDIA is currently generating about -0.21 per unit of risk. If you would invest 869,585 in Microsoft on September 15, 2024 and sell it today you would earn a total of 31,121 from holding Microsoft or generate 3.58% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. NVIDIA
Performance |
| Timeline |
| Microsoft |
| NVIDIA |
Microsoft and NVIDIA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and NVIDIA
The main advantage of trading using opposite Microsoft and NVIDIA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, NVIDIA 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 NVIDIA will offset losses from the drop in NVIDIA's long position.| Microsoft vs. Monster Beverage Corp | Microsoft vs. Costco Wholesale | Microsoft vs. United Airlines Holdings | Microsoft vs. KB Home |
| NVIDIA vs. Grupo Carso SAB | NVIDIA vs. Cognizant Technology Solutions | NVIDIA vs. New Oriental Education | NVIDIA vs. McEwen Mining |
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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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