Correlation Between Microsoft and Norwegian Air
Can any of the company-specific risk be diversified away by investing in both Microsoft and Norwegian Air 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 Norwegian Air into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Norwegian Air Shuttle, you can compare the effects of market volatilities on Microsoft and Norwegian Air 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 Norwegian Air. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Norwegian Air.
Diversification Opportunities for Microsoft and Norwegian Air
0.05 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Microsoft and Norwegian is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Norwegian Air Shuttle in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Norwegian Air Shuttle 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 Norwegian Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Norwegian Air Shuttle has no effect on the direction of Microsoft i.e., Microsoft and Norwegian Air go up and down completely randomly.
Pair Corralation between Microsoft and Norwegian Air
Given the investment horizon of 90 days Microsoft is expected to generate 3.81 times less return on investment than Norwegian Air. But when comparing it to its historical volatility, Microsoft is 5.29 times less risky than Norwegian Air. It trades about 0.04 of its potential returns per unit of risk. Norwegian Air Shuttle is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 96.00 in Norwegian Air Shuttle on August 27, 2024 and sell it today you would earn a total of 1.00 from holding Norwegian Air Shuttle or generate 1.04% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Norwegian Air Shuttle
Performance |
| Timeline |
| Microsoft |
| Norwegian Air Shuttle |
Microsoft and Norwegian Air Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Norwegian Air
The main advantage of trading using opposite Microsoft and Norwegian Air positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Norwegian Air 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 Norwegian Air will offset losses from the drop in Norwegian Air's long position.| Microsoft vs. GigaCloud Technology Class | Microsoft vs. Arqit Quantum | Microsoft vs. Cemtrex | Microsoft vs. Rapid7 Inc |
| Norwegian Air vs. Cebu Air | Norwegian Air vs. Air France KLM SA | Norwegian Air vs. easyJet plc | Norwegian Air vs. Norse Atlantic ASA |
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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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