Correlation Between Microsoft and GOLD ROAD

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

Diversification Opportunities for Microsoft and GOLD ROAD

0.76
  Correlation Coefficient

Poor diversification

The 3 months correlation between Microsoft and GOLD is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and GOLD ROAD RES in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GOLD ROAD RES 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 GOLD ROAD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GOLD ROAD RES has no effect on the direction of Microsoft i.e., Microsoft and GOLD ROAD go up and down completely randomly.

Pair Corralation between Microsoft and GOLD ROAD

Assuming the 90 days trading horizon Microsoft is expected to generate 0.5 times more return on investment than GOLD ROAD. However, Microsoft is 2.02 times less risky than GOLD ROAD. It trades about 0.1 of its potential returns per unit of risk. GOLD ROAD RES is currently generating about 0.02 per unit of risk. If you would invest  20,891  in Microsoft on September 26, 2024 and sell it today you would earn a total of  20,809  from holding Microsoft or generate 99.61% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Microsoft  vs.  GOLD ROAD RES

 Performance 
       Timeline  
Microsoft 

Risk-Adjusted Performance

6 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in January 2025.
GOLD ROAD RES 

Risk-Adjusted Performance

9 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in GOLD ROAD RES are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, GOLD ROAD exhibited solid returns over the last few months and may actually be approaching a breakup point.

Microsoft and GOLD ROAD Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Microsoft and GOLD ROAD

The main advantage of trading using opposite Microsoft and GOLD ROAD positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, GOLD ROAD 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 GOLD ROAD will offset losses from the drop in GOLD ROAD's long position.
The idea behind Microsoft and GOLD ROAD RES 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.

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