Correlation Between Microsoft and GCS Holdings

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

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

Diversification Opportunities for Microsoft and GCS Holdings

0.4

Correlation Coefficient

Microsoft  GCS Holdings

Very weak diversification

The 3 months correlation between Microsoft and GCS is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and GCS Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GCS Holdings 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 GCS Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GCS Holdings has no effect on the direction of Microsoft i.e., Microsoft and GCS Holdings go up and down completely randomly.

Pair Corralation between Microsoft and GCS Holdings

Given the investment horizon of 90 days Microsoft is expected to generate 52.73 times less return on investment than GCS Holdings. But when comparing it to its historical volatility, Microsoft is 3.7 times less risky than GCS Holdings. It trades about 0.03 of its potential returns per unit of risk. GCS Holdings is currently generating about 0.41 of returns per unit of risk over similar time horizon. If you would invest  4,100  in GCS Holdings on September 25, 2024 and sell it today you would earn a total of  9,350  from holding GCS Holdings or generate 228.05% return on investment over 90 days.

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

Microsoft  vs.  GCS Holdings

Microsoft

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

GCS Holdings

Risk-Adjusted Performance

32 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in GCS Holdings are ranked lower than 32 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, GCS Holdings showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and GCS Holdings

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

The idea behind Microsoft and GCS Holdings 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.

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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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.