Correlation Between Microsoft and China Natural
Can any of the company-specific risk be diversified away by investing in both Microsoft and China Natural 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 China Natural into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and China Natural Resources, you can compare the effects of market volatilities on Microsoft and China Natural 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 China Natural. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and China Natural.
Diversification Opportunities for Microsoft and China Natural
0.03 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Microsoft and China is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and China Natural Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Natural Resources 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 China Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Natural Resources has no effect on the direction of Microsoft i.e., Microsoft and China Natural go up and down completely randomly.
Pair Corralation between Microsoft and China Natural
Given the investment horizon of 90 days Microsoft is expected to generate 0.48 times more return on investment than China Natural. However, Microsoft is 2.08 times less risky than China Natural. It trades about -0.06 of its potential returns per unit of risk. China Natural Resources is currently generating about -0.15 per unit of risk. If you would invest 42,375 in Microsoft on August 24, 2024 and sell it today you would lose (1,088) from holding Microsoft or give up 2.57% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. China Natural Resources
Performance |
| Timeline |
| Microsoft |
| China Natural Resources |
Microsoft and China Natural Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and China Natural
The main advantage of trading using opposite Microsoft and China Natural positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, China Natural 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 China Natural will offset losses from the drop in China Natural's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| China Natural vs. Seychelle Environmtl | China Natural vs. Vow ASA | China Natural vs. Eestech | China Natural vs. Energy and Water |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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