Correlation Between Nomura Holdings and Microsoft

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

By analyzing existing cross correlation between Nomura Holdings and Microsoft, you can compare the effects of market volatilities on Nomura Holdings 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 Nomura Holdings with a short position of Microsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nomura Holdings and Microsoft.

Diversification Opportunities for Nomura Holdings and Microsoft

0.66

Correlation Coefficient

Nomura Holdings  Microsoft

Poor diversification

The 3 months correlation between Nomura and Microsoft is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Nomura Holdings and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and Nomura Holdings 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 Nomura Holdings 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 Nomura Holdings i.e., Nomura Holdings and Microsoft go up and down completely randomly.

Pair Corralation between Nomura Holdings and Microsoft

Assuming the 90 days trading horizon Nomura Holdings is expected to under-perform the Microsoft. But the stock apears to be less risky and, when comparing its historical volatility, Nomura Holdings is 1.32 times less risky than Microsoft. The stock trades about -0.23 of its potential returns per unit of risk. The Microsoft is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  8,827  in Microsoft on February 4, 2024 and sell it today you would lose (219.00) from holding Microsoft or give up 2.48% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Nomura Holdings  vs.  Microsoft

Nomura Holdings

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Nomura Holdings are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Nomura Holdings may actually be approaching a critical reversion point that can send shares even higher in June 2024.

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. Despite somewhat strong basic indicators, Microsoft is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Nomura Holdings and Microsoft

The main advantage of trading using opposite Nomura Holdings and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nomura Holdings 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.

The idea behind Nomura Holdings and Microsoft 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.

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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.