Correlation Between Microsoft and Bank of Nanjing

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

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

Diversification Opportunities for Microsoft and Bank of Nanjing

0.0

Correlation Coefficient

Microsoft  Bank of Nanjing

Pay attention - limited upside

The 3 months correlation between Microsoft and Bank is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Bank of Nanjing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of Nanjing 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 Bank of Nanjing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of Nanjing has no effect on the direction of Microsoft i.e., Microsoft and Bank of Nanjing go up and down completely randomly.

Pair Corralation between Microsoft and Bank of Nanjing

Given the investment horizon of 90 days Microsoft is expected to generate 2.23 times less return on investment than Bank of Nanjing. But when comparing it to its historical volatility, Microsoft is 1.44 times less risky than Bank of Nanjing. It trades about 0.02 of its potential returns per unit of risk. Bank of Nanjing is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,025  in Bank of Nanjing on September 24, 2024 and sell it today you would earn a total of  33.00  from holding Bank of Nanjing or generate 3.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	92.31%
Values	Daily Returns

Microsoft  vs.  Bank of Nanjing

Microsoft

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Bank of Nanjing

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of Nanjing are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Bank of Nanjing is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Microsoft and Bank of Nanjing

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

The idea behind Microsoft and Bank of Nanjing 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.

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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.