Correlation Between Microsoft and Northern Lights
Can any of the company-specific risk be diversified away by investing in both Microsoft and Northern Lights 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 Lights into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Northern Lights, you can compare the effects of market volatilities on Microsoft and Northern Lights 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 Lights. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Northern Lights.
Diversification Opportunities for Microsoft and Northern Lights
0.39 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Microsoft and Northern is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Northern Lights in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Lights 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 Lights. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Lights has no effect on the direction of Microsoft i.e., Microsoft and Northern Lights go up and down completely randomly.
Pair Corralation between Microsoft and Northern Lights
Given the investment horizon of 90 days Microsoft is expected to generate 0.77 times more return on investment than Northern Lights. However, Microsoft is 1.31 times less risky than Northern Lights. It trades about -0.21 of its potential returns per unit of risk. Northern Lights is currently generating about -0.18 per unit of risk. If you would invest 41,416 in Microsoft on December 1, 2024 and sell it today you would lose (1,717) from holding Microsoft or give up 4.15% 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 Lights
Performance |
| Timeline |
| Microsoft |
| Northern Lights |
Microsoft and Northern Lights Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Northern Lights
The main advantage of trading using opposite Microsoft and Northern Lights positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Northern Lights 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 Lights will offset losses from the drop in Northern Lights' long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Adobe Systems Incorporated | Microsoft vs. Crowdstrike Holdings |
| Northern Lights vs. Davis Select International | Northern Lights vs. Principal Value ETF | Northern Lights vs. WisdomTree Emerging Markets | Northern Lights vs. Ballast SmallMid Cap |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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