Correlation Between Microsoft and National Presto
Can any of the company-specific risk be diversified away by investing in both Microsoft and National Presto 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 Presto into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and National Presto Industries, you can compare the effects of market volatilities on Microsoft and National Presto 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 Presto. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and National Presto.
Diversification Opportunities for Microsoft and National Presto
0.26 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Microsoft and National is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and National Presto Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Presto Indu 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 Presto. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Presto Indu has no effect on the direction of Microsoft i.e., Microsoft and National Presto go up and down completely randomly.
Pair Corralation between Microsoft and National Presto
Given the investment horizon of 90 days Microsoft is expected to under-perform the National Presto. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.11 times less risky than National Presto. The stock trades about -0.06 of its potential returns per unit of risk. The National Presto Industries is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 7,418 in National Presto Industries on August 24, 2024 and sell it today you would earn a total of 234.00 from holding National Presto Industries or generate 3.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. National Presto Industries
Performance |
| Timeline |
| Microsoft |
| National Presto Indu |
Microsoft and National Presto Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and National Presto
The main advantage of trading using opposite Microsoft and National Presto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, National Presto 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 Presto will offset losses from the drop in National Presto's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
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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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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