Correlation Between Microsoft and New China
Can any of the company-specific risk be diversified away by investing in both Microsoft and New China 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 China into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and New China Life, you can compare the effects of market volatilities on Microsoft and New China 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 China. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and New China.
Diversification Opportunities for Microsoft and New China
Good diversification
The 3 months correlation between Microsoft and New is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and New China Life in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New China Life 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 China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New China Life has no effect on the direction of Microsoft i.e., Microsoft and New China go up and down completely randomly.
Pair Corralation between Microsoft and New China
Given the investment horizon of 90 days Microsoft is expected to generate 3.94 times less return on investment than New China. But when comparing it to its historical volatility, Microsoft is 4.45 times less risky than New China. It trades about 0.15 of its potential returns per unit of risk. New China Life is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 256.00 in New China Life on September 2, 2024 and sell it today you would earn a total of 32.00 from holding New China Life or generate 12.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Microsoft vs. New China Life
Performance |
| Timeline |
| Microsoft |
| New China Life |
Microsoft and New China Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and New China
The main advantage of trading using opposite Microsoft and New China positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, New China 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 China will offset losses from the drop in New China's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| New China vs. Geely Automobile Holdings | New China vs. Singapore Telecommunications Limited | New China vs. INTERSHOP Communications Aktiengesellschaft | New China vs. INTER CARS SA |
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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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