Correlation Between Microsoft and NEM INSURANCE

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

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

Diversification Opportunities for Microsoft and NEM INSURANCE

0.35

Correlation Coefficient

Microsoft  NEM INSURANCE

Weak diversification

The 3 months correlation between Microsoft and NEM is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and NEM INSURANCE PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NEM INSURANCE PLC 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 NEM INSURANCE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NEM INSURANCE PLC has no effect on the direction of Microsoft i.e., Microsoft and NEM INSURANCE go up and down completely randomly.

Pair Corralation between Microsoft and NEM INSURANCE

Given the investment horizon of 90 days Microsoft is expected to generate 8.68 times less return on investment than NEM INSURANCE. But when comparing it to its historical volatility, Microsoft is 2.49 times less risky than NEM INSURANCE. It trades about 0.06 of its potential returns per unit of risk. NEM INSURANCE PLC is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  750.00  in NEM INSURANCE PLC on September 14, 2024 and sell it today you would earn a total of  350.00  from holding NEM INSURANCE PLC or generate 46.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

Microsoft  vs.  NEM INSURANCE PLC

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.

NEM INSURANCE PLC

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in NEM INSURANCE PLC are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, NEM INSURANCE unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and NEM INSURANCE

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

The idea behind Microsoft and NEM INSURANCE PLC 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.