Correlation Between Microsoft and GLOBUS MEDICAL

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

By analyzing existing cross correlation between Microsoft and GLOBUS MEDICAL A, you can compare the effects of market volatilities on Microsoft and GLOBUS MEDICAL 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 GLOBUS MEDICAL. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and GLOBUS MEDICAL.

Diversification Opportunities for Microsoft and GLOBUS MEDICAL

0.76

Correlation Coefficient

Microsoft  GLOBUS MEDICAL

Poor diversification

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

Pair Corralation between Microsoft and GLOBUS MEDICAL

Assuming the 90 days trading horizon Microsoft is expected to generate 2.34 times less return on investment than GLOBUS MEDICAL. But when comparing it to its historical volatility, Microsoft is 1.57 times less risky than GLOBUS MEDICAL. It trades about 0.1 of its potential returns per unit of risk. GLOBUS MEDICAL A is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  6,400  in GLOBUS MEDICAL A on September 24, 2024 and sell it today you would earn a total of  1,400  from holding GLOBUS MEDICAL A or generate 21.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Microsoft  vs.  GLOBUS MEDICAL A

Microsoft

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in January 2025.

GLOBUS MEDICAL A

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in GLOBUS MEDICAL A are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, GLOBUS MEDICAL exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and GLOBUS MEDICAL

The main advantage of trading using opposite Microsoft and GLOBUS MEDICAL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, GLOBUS MEDICAL 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 GLOBUS MEDICAL will offset losses from the drop in GLOBUS MEDICAL's long position.

The idea behind Microsoft and GLOBUS MEDICAL A 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.