Correlation Between Microsoft and Nice
Can any of the company-specific risk be diversified away by investing in both Microsoft and Nice 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 Nice into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Nice, you can compare the effects of market volatilities on Microsoft and Nice 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 Nice. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Nice.
Diversification Opportunities for Microsoft and Nice
Poor diversification
The 3 months correlation between Microsoft and Nice is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Nice in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nice 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 Nice. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nice has no effect on the direction of Microsoft i.e., Microsoft and Nice go up and down completely randomly.
Pair Corralation between Microsoft and Nice
Given the investment horizon of 90 days Microsoft is expected to generate 0.65 times more return on investment than Nice. However, Microsoft is 1.53 times less risky than Nice. It trades about -0.14 of its potential returns per unit of risk. Nice is currently generating about -0.4 per unit of risk. If you would invest 42,165 in Microsoft on January 26, 2024 and sell it today you would lose (1,259) from holding Microsoft or give up 2.99% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 76.19% |
| Values | Daily Returns |
Microsoft vs. Nice
Performance |
| Timeline |
| Microsoft |
| Nice |
Microsoft and Nice Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Nice
The main advantage of trading using opposite Microsoft and Nice positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Nice 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 Nice will offset losses from the drop in Nice's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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