Correlation Between Microsoft and GEO
Can any of the company-specific risk be diversified away by investing in both Microsoft and GEO 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 GEO into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and The GEO Group, you can compare the effects of market volatilities on Microsoft and GEO 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 GEO. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and GEO.
Diversification Opportunities for Microsoft and GEO
Good diversification
The 3 months correlation between Microsoft and GEO is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and The GEO Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GEO Group 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 GEO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GEO Group has no effect on the direction of Microsoft i.e., Microsoft and GEO go up and down completely randomly.
Pair Corralation between Microsoft and GEO
Given the investment horizon of 90 days Microsoft is expected to under-perform the GEO. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 5.33 times less risky than GEO. The stock trades about -0.01 of its potential returns per unit of risk. The The GEO Group is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest 1,154 in The GEO Group on August 29, 2024 and sell it today you would earn a total of 1,483 from holding The GEO Group or generate 128.51% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. The GEO Group
Performance |
| Timeline |
| Microsoft |
| GEO Group |
Microsoft and GEO Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and GEO
The main advantage of trading using opposite Microsoft and GEO positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, GEO 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 GEO will offset losses from the drop in GEO's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| GEO vs. Sabra Health Care | GEO vs. Superior Plus Corp | GEO vs. NMI Holdings | GEO vs. SIVERS SEMICONDUCTORS AB |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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