Correlation Between Microsoft and Novanta
Can any of the company-specific risk be diversified away by investing in both Microsoft and Novanta 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 Novanta into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Novanta, you can compare the effects of market volatilities on Microsoft and Novanta 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 Novanta. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Novanta.
Diversification Opportunities for Microsoft and Novanta
Significant diversification
The 3 months correlation between Microsoft and Novanta is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Novanta in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novanta 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 Novanta. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Novanta has no effect on the direction of Microsoft i.e., Microsoft and Novanta go up and down completely randomly.
Pair Corralation between Microsoft and Novanta
Given the investment horizon of 90 days Microsoft is expected to generate 0.64 times more return on investment than Novanta. However, Microsoft is 1.56 times less risky than Novanta. It trades about 0.08 of its potential returns per unit of risk. Novanta is currently generating about 0.02 per unit of risk. If you would invest 24,116 in Microsoft on August 27, 2024 and sell it today you would earn a total of 17,584 from holding Microsoft or generate 72.91% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Novanta
Performance |
| Timeline |
| Microsoft |
| Novanta |
Microsoft and Novanta Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Novanta
The main advantage of trading using opposite Microsoft and Novanta positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Novanta 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 Novanta will offset losses from the drop in Novanta's long position.| Microsoft vs. GigaCloud Technology Class | Microsoft vs. Arqit Quantum | Microsoft vs. Cemtrex | Microsoft vs. Rapid7 Inc |
| Novanta vs. Mesa Laboratories | Novanta vs. Itron Inc | Novanta vs. Fortive Corp | Novanta vs. Vishay Precision Group |
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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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