Correlation Between Microsoft and Northfield Bancorp
Can any of the company-specific risk be diversified away by investing in both Microsoft and Northfield Bancorp 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 Northfield Bancorp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Northfield Bancorp, you can compare the effects of market volatilities on Microsoft and Northfield Bancorp 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 Northfield Bancorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Northfield Bancorp.
Diversification Opportunities for Microsoft and Northfield Bancorp
0.03 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Microsoft and Northfield is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Northfield Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northfield Bancorp 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 Northfield Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northfield Bancorp has no effect on the direction of Microsoft i.e., Microsoft and Northfield Bancorp go up and down completely randomly.
Pair Corralation between Microsoft and Northfield Bancorp
Given the investment horizon of 90 days Microsoft is expected to generate 3.3 times less return on investment than Northfield Bancorp. But when comparing it to its historical volatility, Microsoft is 2.21 times less risky than Northfield Bancorp. It trades about 0.04 of its potential returns per unit of risk. Northfield Bancorp is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 970.00 in Northfield Bancorp on August 27, 2024 and sell it today you would earn a total of 408.00 from holding Northfield Bancorp or generate 42.06% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Northfield Bancorp
Performance |
| Timeline |
| Microsoft |
| Northfield Bancorp |
Microsoft and Northfield Bancorp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Northfield Bancorp
The main advantage of trading using opposite Microsoft and Northfield Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Northfield Bancorp 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 Northfield Bancorp will offset losses from the drop in Northfield Bancorp's long position.| Microsoft vs. GigaCloud Technology Class | Microsoft vs. Arqit Quantum | Microsoft vs. Cemtrex | Microsoft vs. Rapid7 Inc |
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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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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