Correlation Between Microsoft and National Bank
Can any of the company-specific risk be diversified away by investing in both Microsoft and National Bank 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 National Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and National Bank Holdings, you can compare the effects of market volatilities on Microsoft and National Bank 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 National Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and National Bank.
Diversification Opportunities for Microsoft and National Bank
0.01 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Microsoft and National is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and National Bank Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Bank Holdings 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 National Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Bank Holdings has no effect on the direction of Microsoft i.e., Microsoft and National Bank go up and down completely randomly.
Pair Corralation between Microsoft and National Bank
Given the investment horizon of 90 days Microsoft is expected to under-perform the National Bank. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 2.1 times less risky than National Bank. The stock trades about -0.15 of its potential returns per unit of risk. The National Bank Holdings is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 3,160 in National Bank Holdings on January 25, 2024 and sell it today you would earn a total of 20.00 from holding National Bank Holdings or generate 0.63% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Microsoft vs. National Bank Holdings
Performance |
| Timeline |
| Microsoft |
| National Bank Holdings |
Microsoft and National Bank Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and National Bank
The main advantage of trading using opposite Microsoft and National Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, National Bank 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 National Bank will offset losses from the drop in National Bank's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| National Bank vs. Regions Financial | National Bank vs. KeyCorp | National Bank vs. Superior Plus Corp | National Bank vs. Origin Agritech |
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 Transaction History module to view history of all your transactions and understand their impact on performance.
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