Correlation Between Microsoft and GelStat Corp

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

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

Diversification Opportunities for Microsoft and GelStat Corp

-0.22

Correlation Coefficient

Microsoft  GelStat Corp

Very good diversification

The 3 months correlation between Microsoft and GelStat is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and GelStat Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GelStat Corp 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 GelStat Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GelStat Corp has no effect on the direction of Microsoft i.e., Microsoft and GelStat Corp go up and down completely randomly.

Pair Corralation between Microsoft and GelStat Corp

Given the investment horizon of 90 days Microsoft is expected to generate 15.46 times less return on investment than GelStat Corp. But when comparing it to its historical volatility, Microsoft is 13.0 times less risky than GelStat Corp. It trades about 0.05 of its potential returns per unit of risk. GelStat Corp is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  0.05  in GelStat Corp on September 2, 2024 and sell it today you would lose (0.01) from holding GelStat Corp or give up 20.0% of portfolio value over 90 days.

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

Microsoft  vs.  GelStat Corp

Microsoft

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 3 (%) 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 latest stock price uproar, may contribute to short-horizon losses for the private investors.

GelStat Corp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in GelStat Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting basic indicators, GelStat Corp exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and GelStat Corp

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

The idea behind Microsoft and GelStat Corp 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.