Correlation Between Nike and Microsoft Corp

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Can any of the company-specific risk be diversified away by investing in both Nike and Microsoft Corp 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 Nike and Microsoft Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nike Inc and Microsoft Corp, you can compare the effects of market volatilities on Nike and Microsoft Corp 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 Nike with a short position of Microsoft Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nike and Microsoft Corp.

Diversification Opportunities for Nike and Microsoft Corp

0.85
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Nike and Microsoft is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Nike Inc and Microsoft Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft Corp and Nike 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 Nike Inc are associated (or correlated) with Microsoft Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft Corp has no effect on the direction of Nike i.e., Nike and Microsoft Corp go up and down completely randomly.

Pair Corralation between Nike and Microsoft Corp

Considering the 90-day investment horizon Nike Inc is expected to under-perform the Microsoft Corp. In addition to that, Nike is 1.69 times more volatile than Microsoft Corp. It trades about -0.17 of its total potential returns per unit of risk. Microsoft Corp is currently generating about -0.15 per unit of volatility. If you would invest  28,032  in Microsoft Corp on July 8, 2022 and sell it today you would lose (3,112)  from holding Microsoft Corp or give up 11.1% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Nike Inc  vs.  Microsoft Corp

 Performance (%) 
       Timeline  
Nike Inc 
Nike Performance
0 of 100
Over the last 90 days Nike Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's forward-looking signals remain rather sound which may send shares a bit higher in November 2022. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Nike Price Channel

Microsoft Corp 
Microsoft Performance
0 of 100
Over the last 90 days Microsoft Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Microsoft Corp is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Microsoft Price Channel

Nike and Microsoft Corp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Nike and Microsoft Corp

The main advantage of trading using opposite Nike and Microsoft Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nike position performs unexpectedly, Microsoft Corp 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 Microsoft Corp will offset losses from the drop in Microsoft Corp's long position.
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The idea behind Nike Inc and Microsoft Corp 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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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 Watchlist Optimization module to optimize watchlists to build efficient portfolio or rebalance existing positions based on mean-variance optimization algorithm.

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