Correlation Between Microsoft and Global Resources

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

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

Diversification Opportunities for Microsoft and Global Resources

-0.64

Correlation Coefficient

Microsoft  Global Resources

Excellent diversification

The 3 months correlation between Microsoft and Global is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Global Resources Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Resources 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 Global Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Resources has no effect on the direction of Microsoft i.e., Microsoft and Global Resources go up and down completely randomly.

Pair Corralation between Microsoft and Global Resources

Given the investment horizon of 90 days Microsoft is expected to generate 1.35 times more return on investment than Global Resources. However, Microsoft is 1.35 times more volatile than Global Resources Fund. It trades about 0.01 of its potential returns per unit of risk. Global Resources Fund is currently generating about -0.13 per unit of risk. If you would invest  43,440  in Microsoft on September 20, 2024 and sell it today you would earn a total of  263.00  from holding Microsoft or generate 0.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Microsoft  vs.  Global Resources Fund

Microsoft

Risk-Adjusted Performance

1 of 100

Modest

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.

Global Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Global Resources Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Microsoft and Global Resources

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

The idea behind Microsoft and Global Resources Fund 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.