Correlation Between Microsoft and Galapagos

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Can any of the company-specific risk be diversified away by investing in both Microsoft and Galapagos 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 Galapagos into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Galapagos NV, you can compare the effects of market volatilities on Microsoft and Galapagos 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 Galapagos. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Galapagos.

Diversification Opportunities for Microsoft and Galapagos

-0.11
  Correlation Coefficient

Good diversification

The 3 months correlation between Microsoft and Galapagos is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Galapagos NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Galapagos NV 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 Galapagos. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Galapagos NV has no effect on the direction of Microsoft i.e., Microsoft and Galapagos go up and down completely randomly.

Pair Corralation between Microsoft and Galapagos

Given the investment horizon of 90 days Microsoft is expected to generate 0.61 times more return on investment than Galapagos. However, Microsoft is 1.65 times less risky than Galapagos. It trades about 0.05 of its potential returns per unit of risk. Galapagos NV is currently generating about -0.03 per unit of risk. If you would invest  43,781  in Microsoft on September 19, 2024 and sell it today you would earn a total of  1,665  from holding Microsoft or generate 3.8% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy98.44%
ValuesDaily Returns

Microsoft  vs.  Galapagos NV

 Performance 
       Timeline  
Microsoft 

Risk-Adjusted Performance

4 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 4 (%) 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.
Galapagos NV 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Galapagos NV has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Galapagos is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Microsoft and Galapagos Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Microsoft and Galapagos

The main advantage of trading using opposite Microsoft and Galapagos positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Galapagos 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 Galapagos will offset losses from the drop in Galapagos' long position.
The idea behind Microsoft and Galapagos NV 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.

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