Correlation Between Microsoft and Northern Bond
Can any of the company-specific risk be diversified away by investing in both Microsoft and Northern Bond 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 Northern Bond into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Northern Bond Index, you can compare the effects of market volatilities on Microsoft and Northern Bond 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 Northern Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Northern Bond.
Diversification Opportunities for Microsoft and Northern Bond
0.21 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Microsoft and Northern is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Northern Bond Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Bond Index 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 Northern Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Bond Index has no effect on the direction of Microsoft i.e., Microsoft and Northern Bond go up and down completely randomly.
Pair Corralation between Microsoft and Northern Bond
Given the investment horizon of 90 days Microsoft is expected to generate 4.21 times more return on investment than Northern Bond. However, Microsoft is 4.21 times more volatile than Northern Bond Index. It trades about -0.01 of its potential returns per unit of risk. Northern Bond Index is currently generating about -0.16 per unit of risk. If you would invest 42,944 in Microsoft on August 29, 2024 and sell it today you would lose (558.00) from holding Microsoft or give up 1.3% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Northern Bond Index
Performance |
| Timeline |
| Microsoft |
| Northern Bond Index |
Microsoft and Northern Bond Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Northern Bond
The main advantage of trading using opposite Microsoft and Northern Bond positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Northern Bond 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 Northern Bond will offset losses from the drop in Northern Bond's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Northern Bond vs. Vanguard Total Bond | Northern Bond vs. Vanguard Total Bond | Northern Bond vs. Vanguard Total Bond | Northern Bond vs. Vanguard Total Bond |
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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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