Correlation Between Nestle SA and Microsoft
Can any of the company-specific risk be diversified away by investing in both Nestle SA and Microsoft 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 Nestle SA and Microsoft into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nestle SA and Microsoft, you can compare the effects of market volatilities on Nestle SA and Microsoft 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 Nestle SA with a short position of Microsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nestle SA and Microsoft.
Diversification Opportunities for Nestle SA and Microsoft
Excellent diversification
The 3 months correlation between Nestle and Microsoft is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Nestle SA and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and Nestle SA 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 Nestle SA are associated (or correlated) with Microsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft has no effect on the direction of Nestle SA i.e., Nestle SA and Microsoft go up and down completely randomly.
Pair Corralation between Nestle SA and Microsoft
Assuming the 90 days horizon Nestle SA is expected to under-perform the Microsoft. But the pink sheet apears to be less risky and, when comparing its historical volatility, Nestle SA is 1.19 times less risky than Microsoft. The pink sheet trades about -0.07 of its potential returns per unit of risk. The Microsoft is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 29,297 in Microsoft on January 21, 2024 and sell it today you would earn a total of 10,615 from holding Microsoft or generate 36.23% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 99.6% |
| Values | Daily Returns |
Nestle SA vs. Microsoft
Performance |
| Timeline |
| Nestle SA |
| Microsoft |
Nestle SA and Microsoft Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Nestle SA and Microsoft
The main advantage of trading using opposite Nestle SA and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nestle SA position performs unexpectedly, Microsoft 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 will offset losses from the drop in Microsoft's long position.| Nestle SA vs. Kellanova | Nestle SA vs. Lancaster Colony | Nestle SA vs. The A2 Milk | Nestle SA vs. Artisan Consumer Goods |
| Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated | Microsoft vs. Crowdstrike Holdings | Microsoft vs. Cloudflare |
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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
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