Correlation Between Microsoft and FIRST NATIONAL

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

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

Diversification Opportunities for Microsoft and FIRST NATIONAL

0.19

Correlation Coefficient

Microsoft  FIRST NATIONAL

Average diversification

The 3 months correlation between Microsoft and FIRST is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and FIRST NATIONAL FIN in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FIRST NATIONAL FIN 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 FIRST NATIONAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FIRST NATIONAL FIN has no effect on the direction of Microsoft i.e., Microsoft and FIRST NATIONAL go up and down completely randomly.

Pair Corralation between Microsoft and FIRST NATIONAL

Given the investment horizon of 90 days Microsoft is expected to generate 0.62 times more return on investment than FIRST NATIONAL. However, Microsoft is 1.61 times less risky than FIRST NATIONAL. It trades about 0.19 of its potential returns per unit of risk. FIRST NATIONAL FIN is currently generating about -0.25 per unit of risk. If you would invest  41,879  in Microsoft on September 26, 2024 and sell it today you would earn a total of  2,054  from holding Microsoft or generate 4.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Microsoft  vs.  FIRST NATIONAL FIN

Microsoft

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 2 (%) 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 latest stock price uproar, may contribute to short-horizon losses for the private investors.

FIRST NATIONAL FIN

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in FIRST NATIONAL FIN are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, FIRST NATIONAL may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Microsoft and FIRST NATIONAL

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

The idea behind Microsoft and FIRST NATIONAL FIN 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.