Correlation Between Microsoft and Nufarm
Can any of the company-specific risk be diversified away by investing in both Microsoft and Nufarm 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 Nufarm into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Nufarm, you can compare the effects of market volatilities on Microsoft and Nufarm 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 Nufarm. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Nufarm.
Diversification Opportunities for Microsoft and Nufarm
Significant diversification
The 3 months correlation between Microsoft and Nufarm is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Nufarm in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nufarm 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 Nufarm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nufarm has no effect on the direction of Microsoft i.e., Microsoft and Nufarm go up and down completely randomly.
Pair Corralation between Microsoft and Nufarm
Given the investment horizon of 90 days Microsoft is expected to under-perform the Nufarm. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.24 times less risky than Nufarm. The stock trades about -0.04 of its potential returns per unit of risk. The Nufarm is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 380.00 in Nufarm on August 30, 2024 and sell it today you would earn a total of 7.00 from holding Nufarm or generate 1.84% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Nufarm
Performance |
| Timeline |
| Microsoft |
| Nufarm |
Microsoft and Nufarm Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Nufarm
The main advantage of trading using opposite Microsoft and Nufarm positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Nufarm 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 Nufarm will offset losses from the drop in Nufarm's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Nufarm vs. BKI Investment | Nufarm vs. Sandon Capital Investments | Nufarm vs. Diversified United Investment | Nufarm vs. ACDC Metals |
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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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