Correlation Between Microsoft and NIKKON HOLDINGS

Can any of the company-specific risk be diversified away by investing in both Microsoft and NIKKON HOLDINGS 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 NIKKON HOLDINGS into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Microsoft and NIKKON HOLDINGS TD, you can compare the effects of market volatilities on Microsoft and NIKKON HOLDINGS 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 NIKKON HOLDINGS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and NIKKON HOLDINGS.

Diversification Opportunities for Microsoft and NIKKON HOLDINGS

0.78

Correlation Coefficient

Microsoft  NIKKON HOLDINGS

Poor diversification

The 3 months correlation between Microsoft and NIKKON is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and NIKKON HOLDINGS TD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NIKKON HOLDINGS TD 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 NIKKON HOLDINGS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NIKKON HOLDINGS TD has no effect on the direction of Microsoft i.e., Microsoft and NIKKON HOLDINGS go up and down completely randomly.

Pair Corralation between Microsoft and NIKKON HOLDINGS

Assuming the 90 days trading horizon Microsoft is expected to generate 0.97 times more return on investment than NIKKON HOLDINGS. However, Microsoft is 1.03 times less risky than NIKKON HOLDINGS. It trades about 0.1 of its potential returns per unit of risk. NIKKON HOLDINGS TD is currently generating about 0.06 per unit of risk. If you would invest  38,818  in Microsoft on September 23, 2024 and sell it today you would earn a total of  3,312  from holding Microsoft or generate 8.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Microsoft  vs.  NIKKON HOLDINGS TD

Microsoft

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in January 2025.

NIKKON HOLDINGS TD

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NIKKON HOLDINGS TD are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, NIKKON HOLDINGS is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Microsoft and NIKKON HOLDINGS

The main advantage of trading using opposite Microsoft and NIKKON HOLDINGS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, NIKKON HOLDINGS 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 NIKKON HOLDINGS will offset losses from the drop in NIKKON HOLDINGS's long position.

The idea behind Microsoft and NIKKON HOLDINGS TD pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.