Correlation Between Microsoft and Nextera Energy
Can any of the company-specific risk be diversified away by investing in both Microsoft and Nextera Energy 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 Nextera Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Nextera Energy, you can compare the effects of market volatilities on Microsoft and Nextera Energy 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 Nextera Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Nextera Energy.
Diversification Opportunities for Microsoft and Nextera Energy
0.26 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Microsoft and Nextera is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Nextera Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nextera Energy 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 Nextera Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nextera Energy has no effect on the direction of Microsoft i.e., Microsoft and Nextera Energy go up and down completely randomly.
Pair Corralation between Microsoft and Nextera Energy
Given the investment horizon of 90 days Microsoft is expected to generate 1.88 times more return on investment than Nextera Energy. However, Microsoft is 1.88 times more volatile than Nextera Energy. It trades about 0.08 of its potential returns per unit of risk. Nextera Energy is currently generating about 0.04 per unit of risk. If you would invest 24,843 in Microsoft on September 2, 2024 and sell it today you would earn a total of 17,503 from holding Microsoft or generate 70.45% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Nextera Energy
Performance |
| Timeline |
| Microsoft |
| Nextera Energy |
Microsoft and Nextera Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Nextera Energy
The main advantage of trading using opposite Microsoft and Nextera Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Nextera Energy 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 Nextera Energy will offset losses from the drop in Nextera Energy's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Nextera Energy vs. Pacific Gas and | Nextera Energy vs. Pacific Gas and | Nextera Energy vs. Pacific Gas and | Nextera Energy vs. Pacific Gas and |
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 Transaction History module to view history of all your transactions and understand their impact on performance.
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