Correlation Between Microsoft and Newmont

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

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

Diversification Opportunities for Microsoft and Newmont

-0.46

Correlation Coefficient

Microsoft  Newmont

Very good diversification

The 3 months correlation between Microsoft and Newmont is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Newmont in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Newmont 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 Newmont. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Newmont has no effect on the direction of Microsoft i.e., Microsoft and Newmont go up and down completely randomly.

Pair Corralation between Microsoft and Newmont

Assuming the 90 days trading horizon Microsoft is expected to generate 21.83 times less return on investment than Newmont. But when comparing it to its historical volatility, Microsoft is 1.33 times less risky than Newmont. It trades about 0.02 of its potential returns per unit of risk. Newmont is currently generating about 0.4 of returns per unit of risk over similar time horizon. If you would invest  3,687  in Newmont on October 22, 2024 and sell it today you would earn a total of  345.00  from holding Newmont or generate 9.36% 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.  Newmont

Microsoft

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Newmont

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Newmont has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's primary indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Microsoft and Newmont

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

The idea behind Microsoft and Newmont 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.