Correlation Between Microsoft and Globe Life

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

By analyzing existing cross correlation between Microsoft and Globe Life 425, you can compare the effects of market volatilities on Microsoft and Globe Life 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 Globe Life. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Globe Life.

Diversification Opportunities for Microsoft and Globe Life

-0.42

Correlation Coefficient

Microsoft  Globe Life

Very good diversification

The 3 months correlation between Microsoft and Globe is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Globe Life 425 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Globe Life 425 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 Globe Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Globe Life 425 has no effect on the direction of Microsoft i.e., Microsoft and Globe Life go up and down completely randomly.

Pair Corralation between Microsoft and Globe Life

Given the investment horizon of 90 days Microsoft is expected to generate 1.06 times more return on investment than Globe Life. However, Microsoft is 1.06 times more volatile than Globe Life 425. It trades about 0.02 of its potential returns per unit of risk. Globe Life 425 is currently generating about -0.13 per unit of risk. If you would invest  43,125  in Microsoft on September 25, 2024 and sell it today you would earn a total of  400.00  from holding Microsoft or generate 0.93% return on investment over 90 days.

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

Microsoft  vs.  Globe Life 425

Microsoft

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 1 (%) 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.

Globe Life 425

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Globe Life 425 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Preferred Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Microsoft and Globe Life

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

The idea behind Microsoft and Globe Life 425 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.