Correlation Between Microsoft and Nasdaq
Can any of the company-specific risk be diversified away by investing in both Microsoft and Nasdaq 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 Nasdaq into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Nasdaq Inc, you can compare the effects of market volatilities on Microsoft and Nasdaq 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 Nasdaq. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Nasdaq.
Diversification Opportunities for Microsoft and Nasdaq
Significant diversification
The 3 months correlation between Microsoft and Nasdaq is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Nasdaq Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nasdaq Inc 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 Nasdaq. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nasdaq Inc has no effect on the direction of Microsoft i.e., Microsoft and Nasdaq go up and down completely randomly.
Pair Corralation between Microsoft and Nasdaq
Given the investment horizon of 90 days Microsoft is expected to under-perform the Nasdaq. In addition to that, Microsoft is 1.33 times more volatile than Nasdaq Inc. It trades about -0.04 of its total potential returns per unit of risk. Nasdaq Inc is currently generating about 0.52 per unit of volatility. If you would invest 21,802 in Nasdaq Inc on August 31, 2024 and sell it today you would earn a total of 3,275 from holding Nasdaq Inc or generate 15.02% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Microsoft vs. Nasdaq Inc
Performance |
| Timeline |
| Microsoft |
| Nasdaq Inc |
Microsoft and Nasdaq Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Nasdaq
The main advantage of trading using opposite Microsoft and Nasdaq positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Nasdaq 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 Nasdaq will offset losses from the drop in Nasdaq's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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