Correlation Between Microsoft and Widgie Nickel
Can any of the company-specific risk be diversified away by investing in both Microsoft and Widgie Nickel 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 Widgie Nickel into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Widgie Nickel Limited, you can compare the effects of market volatilities on Microsoft and Widgie Nickel 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 Widgie Nickel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Widgie Nickel.
Diversification Opportunities for Microsoft and Widgie Nickel
0.01 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Microsoft and Widgie is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Widgie Nickel Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Widgie Nickel Limited 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 Widgie Nickel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Widgie Nickel Limited has no effect on the direction of Microsoft i.e., Microsoft and Widgie Nickel go up and down completely randomly.
Pair Corralation between Microsoft and Widgie Nickel
Given the investment horizon of 90 days Microsoft is expected to generate 49.71 times less return on investment than Widgie Nickel. But when comparing it to its historical volatility, Microsoft is 34.57 times less risky than Widgie Nickel. It trades about 0.06 of its potential returns per unit of risk. Widgie Nickel Limited is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 2.50 in Widgie Nickel Limited on October 26, 2024 and sell it today you would lose (1.28) from holding Widgie Nickel Limited or give up 51.2% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Widgie Nickel Limited
Performance |
| Timeline |
| Microsoft |
| Widgie Nickel Limited |
Microsoft and Widgie Nickel Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Widgie Nickel
The main advantage of trading using opposite Microsoft and Widgie Nickel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Widgie Nickel 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 Widgie Nickel will offset losses from the drop in Widgie Nickel'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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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