Correlation Between Microsoft and New Oriental
Can any of the company-specific risk be diversified away by investing in both Microsoft and New Oriental 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 New Oriental into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and New Oriental Education, you can compare the effects of market volatilities on Microsoft and New Oriental 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 New Oriental. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and New Oriental.
Diversification Opportunities for Microsoft and New Oriental
-0.08 | Correlation Coefficient |
Good diversification
The 3 months correlation between Microsoft and New is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and New Oriental Education in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Oriental Education 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 New Oriental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Oriental Education has no effect on the direction of Microsoft i.e., Microsoft and New Oriental go up and down completely randomly.
Pair Corralation between Microsoft and New Oriental
Given the investment horizon of 90 days Microsoft is expected to generate 0.39 times more return on investment than New Oriental. However, Microsoft is 2.55 times less risky than New Oriental. It trades about 0.01 of its potential returns per unit of risk. New Oriental Education is currently generating about -0.06 per unit of risk. If you would invest 41,133 in Microsoft on August 27, 2024 and sell it today you would earn a total of 567.00 from holding Microsoft or generate 1.38% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. New Oriental Education
Performance |
| Timeline |
| Microsoft |
| New Oriental Education |
Microsoft and New Oriental Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and New Oriental
The main advantage of trading using opposite Microsoft and New Oriental positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, New Oriental 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 New Oriental will offset losses from the drop in New Oriental's long position.| Microsoft vs. GigaCloud Technology Class | Microsoft vs. Arqit Quantum | Microsoft vs. Cemtrex | Microsoft vs. Rapid7 Inc |
| New Oriental vs. American Public Education | New Oriental vs. Lincoln Educational Services | New Oriental vs. Adtalem Global Education |
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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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