Correlation Between Microsoft and HNI

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

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

Diversification Opportunities for Microsoft and HNI

0.25

Correlation Coefficient

Microsoft  HNI

Modest diversification

The 3 months correlation between Microsoft and HNI is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and HNI Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HNI Corporation 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 HNI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HNI Corporation has no effect on the direction of Microsoft i.e., Microsoft and HNI go up and down completely randomly.

Pair Corralation between Microsoft and HNI

Given the investment horizon of 90 days Microsoft is expected to generate 2.7 times less return on investment than HNI. But when comparing it to its historical volatility, Microsoft is 1.43 times less risky than HNI. It trades about 0.04 of its potential returns per unit of risk. HNI Corporation is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  4,248  in HNI Corporation on September 13, 2024 and sell it today you would earn a total of  952.00  from holding HNI Corporation or generate 22.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.69%
Values	Daily Returns

Microsoft  vs.  HNI Corp.

Microsoft

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 4 (%) 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.

HNI Corporation

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HNI Corporation are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, HNI reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and HNI

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

The idea behind Microsoft and HNI Corporation 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.