Correlation Between Microsoft and GOLD ROAD
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
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 0.49 times more return on investment than GOLD ROAD. However, Microsoft is 2.03 times less risky than GOLD ROAD. It trades about 0.11 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 20,752 in Microsoft on September 26, 2024 and sell it today you would earn a total of 21,213 from holding Microsoft or generate 102.22% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. GOLD ROAD RES
Performance |
| Timeline |
| Microsoft |
| GOLD ROAD RES |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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