Correlation Between Microsoft and Next Capital

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

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

Diversification Opportunities for Microsoft and Next Capital

-0.52

Correlation Coefficient

Microsoft  Next Capital

Excellent diversification

The 3 months correlation between Microsoft and Next is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Next Capital Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Next Capital Public 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 Next Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Next Capital Public has no effect on the direction of Microsoft i.e., Microsoft and Next Capital go up and down completely randomly.

Pair Corralation between Microsoft and Next Capital

Given the investment horizon of 90 days Microsoft is expected to generate 0.45 times more return on investment than Next Capital. However, Microsoft is 2.23 times less risky than Next Capital. It trades about 0.16 of its potential returns per unit of risk. Next Capital Public is currently generating about -0.24 per unit of risk. If you would invest  42,299  in Microsoft on September 28, 2024 and sell it today you would earn a total of  1,512  from holding Microsoft or generate 3.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Microsoft  vs.  Next Capital Public

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 current stock price uproar, may contribute to short-horizon losses for the private investors.

Next Capital Public

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Next Capital Public has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's forward-looking signals remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Microsoft and Next Capital

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

The idea behind Microsoft and Next Capital Public 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.