Correlation Between Microsoft and First National
Can any of the company-specific risk be diversified away by investing in both Microsoft and First National 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 First National into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and First National Corp, you can compare the effects of market volatilities on Microsoft and First National 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 First National. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and First National.
Diversification Opportunities for Microsoft and First National
0.02 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Microsoft and First is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and First National Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First National Corp 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 First National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First National Corp has no effect on the direction of Microsoft i.e., Microsoft and First National go up and down completely randomly.
Pair Corralation between Microsoft and First National
Given the investment horizon of 90 days Microsoft is expected to under-perform the First National. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.18 times less risky than First National. The stock trades about -0.04 of its potential returns per unit of risk. The First National Corp is currently generating about 0.37 of returns per unit of risk over similar time horizon. If you would invest 2,100 in First National Corp on August 30, 2024 and sell it today you would earn a total of 378.00 from holding First National Corp or generate 18.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. First National Corp
Performance |
| Timeline |
| Microsoft |
| First National Corp |
Microsoft and First National Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and First National
The main advantage of trading using opposite Microsoft and First National positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, First National 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 First National will offset losses from the drop in First National's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| First National vs. Home Federal Bancorp | First National vs. Lake Shore Bancorp | First National vs. Oak Valley Bancorp | First National vs. Community West Bancshares |
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 CEOs Directory module to screen CEOs from public companies around the world.
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