Correlation Between Microsoft and National Grid
Can any of the company-specific risk be diversified away by investing in both Microsoft and National Grid 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 National Grid into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and National Grid PLC, you can compare the effects of market volatilities on Microsoft and National Grid 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 National Grid. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and National Grid.
Diversification Opportunities for Microsoft and National Grid
0.52 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Microsoft and National is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and National Grid PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Grid PLC 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 National Grid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Grid PLC has no effect on the direction of Microsoft i.e., Microsoft and National Grid go up and down completely randomly.
Pair Corralation between Microsoft and National Grid
Given the investment horizon of 90 days Microsoft is expected to generate 1.18 times less return on investment than National Grid. But when comparing it to its historical volatility, Microsoft is 1.1 times less risky than National Grid. It trades about 0.19 of its potential returns per unit of risk. National Grid PLC is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest 1,135 in National Grid PLC on September 1, 2024 and sell it today you would earn a total of 65.00 from holding National Grid PLC or generate 5.73% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 91.3% |
| Values | Daily Returns |
Microsoft vs. National Grid PLC
Performance |
| Timeline |
| Microsoft |
| National Grid PLC |
Microsoft and National Grid Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and National Grid
The main advantage of trading using opposite Microsoft and National Grid positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, National Grid 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 National Grid will offset losses from the drop in National Grid's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| National Grid vs. Enel SpA | National Grid vs. Enel SpA | National Grid vs. Dominion Energy | National Grid vs. Sempra |
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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
Other Complementary Tools
| Alpha Finder Use alpha and beta coefficients to find investment opportunities after accounting for the risk | |
| Equity Valuation Check real value of public entities based on technical and fundamental data | |
| Cryptocurrency Center Build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency | |
| Content Syndication Quickly integrate customizable finance content to your own investment portal | |
| Bond Analysis Evaluate and analyze corporate bonds as a potential investment for your portfolios. |