Correlation Between Microsoft and N2ET34
Can any of the company-specific risk be diversified away by investing in both Microsoft and N2ET34 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 N2ET34 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and N2ET34, you can compare the effects of market volatilities on Microsoft and N2ET34 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 N2ET34. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and N2ET34.
Diversification Opportunities for Microsoft and N2ET34
Poor diversification
The 3 months correlation between Microsoft and N2ET34 is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and N2ET34 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on N2ET34 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 N2ET34. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of N2ET34 has no effect on the direction of Microsoft i.e., Microsoft and N2ET34 go up and down completely randomly.
Pair Corralation between Microsoft and N2ET34
Assuming the 90 days trading horizon Microsoft is expected to generate 1.96 times less return on investment than N2ET34. But when comparing it to its historical volatility, Microsoft is 2.3 times less risky than N2ET34. It trades about 0.1 of its potential returns per unit of risk. N2ET34 is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 1,659 in N2ET34 on September 19, 2024 and sell it today you would earn a total of 2,337 from holding N2ET34 or generate 140.87% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 98.99% |
| Values | Daily Returns |
Microsoft vs. N2ET34
Performance |
| Timeline |
| Microsoft |
| N2ET34 |
Microsoft and N2ET34 Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and N2ET34
The main advantage of trading using opposite Microsoft and N2ET34 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, N2ET34 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 N2ET34 will offset losses from the drop in N2ET34's long position.| Microsoft vs. Oracle | Microsoft vs. Costco Wholesale | Microsoft vs. Porto Seguro SA | Microsoft vs. Fertilizantes Heringer SA |
| N2ET34 vs. Palantir Technologies | N2ET34 vs. British American Tobacco | N2ET34 vs. Marvell Technology | N2ET34 vs. Micron Technology |
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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
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