Correlation Between Microsoft and New Age
Can any of the company-specific risk be diversified away by investing in both Microsoft and New Age 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 Age into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and New Age Metals, you can compare the effects of market volatilities on Microsoft and New Age 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 Age. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and New Age.
Diversification Opportunities for Microsoft and New Age
Excellent diversification
The 3 months correlation between Microsoft and New is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and New Age Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Age Metals 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 Age. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Age Metals has no effect on the direction of Microsoft i.e., Microsoft and New Age go up and down completely randomly.
Pair Corralation between Microsoft and New Age
Given the investment horizon of 90 days Microsoft is expected to generate 0.16 times more return on investment than New Age. However, Microsoft is 6.2 times less risky than New Age. It trades about 0.12 of its potential returns per unit of risk. New Age Metals is currently generating about -0.05 per unit of risk. If you would invest 41,879 in Microsoft on October 26, 2024 and sell it today you would earn a total of 2,519 from holding Microsoft or generate 6.01% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. New Age Metals
Performance |
| Timeline |
| Microsoft |
| New Age Metals |
Microsoft and New Age Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and New Age
The main advantage of trading using opposite Microsoft and New Age positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, New Age 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 Age will offset losses from the drop in New Age's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. BLOCK INC | Microsoft vs. Adobe Systems Incorporated | Microsoft vs. Crowdstrike Holdings |
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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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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