Correlation Between Microsoft and Northland Power
Can any of the company-specific risk be diversified away by investing in both Microsoft and Northland Power 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 Northland Power into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Northland Power, you can compare the effects of market volatilities on Microsoft and Northland Power 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 Northland Power. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Northland Power.
Diversification Opportunities for Microsoft and Northland Power
-0.27 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Microsoft and Northland is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Northland Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northland Power 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 Northland Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northland Power has no effect on the direction of Microsoft i.e., Microsoft and Northland Power go up and down completely randomly.
Pair Corralation between Microsoft and Northland Power
Given the investment horizon of 90 days Microsoft is expected to generate 0.46 times more return on investment than Northland Power. However, Microsoft is 2.17 times less risky than Northland Power. It trades about 0.22 of its potential returns per unit of risk. Northland Power is currently generating about -0.09 per unit of risk. If you would invest 42,604 in Microsoft on September 15, 2024 and sell it today you would earn a total of 2,123 from holding Microsoft or generate 4.98% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Microsoft vs. Northland Power
Performance |
| Timeline |
| Microsoft |
| Northland Power |
Microsoft and Northland Power Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Northland Power
The main advantage of trading using opposite Microsoft and Northland Power positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Northland Power 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 Northland Power will offset losses from the drop in Northland Power's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
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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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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