Correlation Between Microsoft and GAMESTOP
Can any of the company-specific risk be diversified away by investing in both Microsoft and GAMESTOP 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 GAMESTOP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and GAMESTOP, you can compare the effects of market volatilities on Microsoft and GAMESTOP 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 GAMESTOP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and GAMESTOP.
Diversification Opportunities for Microsoft and GAMESTOP
Very poor diversification
The 3 months correlation between Microsoft and GAMESTOP is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and GAMESTOP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GAMESTOP 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 GAMESTOP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GAMESTOP has no effect on the direction of Microsoft i.e., Microsoft and GAMESTOP go up and down completely randomly.
Pair Corralation between Microsoft and GAMESTOP
Assuming the 90 days trading horizon Microsoft is expected to generate 0.23 times more return on investment than GAMESTOP. However, Microsoft is 4.4 times less risky than GAMESTOP. It trades about 0.22 of its potential returns per unit of risk. GAMESTOP is currently generating about 0.03 per unit of risk. If you would invest 40,045 in Microsoft on September 28, 2024 and sell it today you would earn a total of 1,785 from holding Microsoft or generate 4.46% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. GAMESTOP
Performance |
| Timeline |
| Microsoft |
| GAMESTOP |
Microsoft and GAMESTOP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and GAMESTOP
The main advantage of trading using opposite Microsoft and GAMESTOP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, GAMESTOP 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 GAMESTOP will offset losses from the drop in GAMESTOP's long position.| Microsoft vs. JLT MOBILE PUTER | Microsoft vs. Consolidated Communications Holdings | Microsoft vs. Waste Management | Microsoft vs. WillScot Mobile Mini |
| GAMESTOP vs. Siamgas And Petrochemicals | GAMESTOP vs. Salesforce | GAMESTOP vs. ADRIATIC METALS LS 013355 | GAMESTOP vs. GALENA MINING LTD |
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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.
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