Correlation Between Microsoft and NIKE

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

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

Diversification Opportunities for Microsoft and NIKE

-0.51

Correlation Coefficient

Microsoft  NIKE

Excellent diversification

The 3 months correlation between Microsoft and NIKE is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and NIKE Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NIKE Inc 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 NIKE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NIKE Inc has no effect on the direction of Microsoft i.e., Microsoft and NIKE go up and down completely randomly.

Pair Corralation between Microsoft and NIKE

Assuming the 90 days trading horizon Microsoft is expected to generate 1.57 times more return on investment than NIKE. However, Microsoft is 1.57 times more volatile than NIKE Inc. It trades about 0.16 of its potential returns per unit of risk. NIKE Inc is currently generating about -0.2 per unit of risk. If you would invest  37,531  in Microsoft on February 22, 2024 and sell it today you would earn a total of  2,029  from holding Microsoft or generate 5.41% 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.  NIKE Inc

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 rather sound technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

NIKE Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NIKE Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in June 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Microsoft and NIKE

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

The idea behind Microsoft and NIKE Inc 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.