Correlation Between Microsoft and GraniteShares

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

By analyzing existing cross correlation between Microsoft and GraniteShares 3x Long, you can compare the effects of market volatilities on Microsoft and GraniteShares 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 GraniteShares. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and GraniteShares.

Diversification Opportunities for Microsoft and GraniteShares

0.53

Correlation Coefficient

Microsoft  GraniteShares

Very weak diversification

The 3 months correlation between Microsoft and GraniteShares is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and GraniteShares 3x Long in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GraniteShares 3x Long 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 GraniteShares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GraniteShares 3x Long has no effect on the direction of Microsoft i.e., Microsoft and GraniteShares go up and down completely randomly.

Pair Corralation between Microsoft and GraniteShares

Given the investment horizon of 90 days Microsoft is expected to generate 14.09 times less return on investment than GraniteShares. But when comparing it to its historical volatility, Microsoft is 2.58 times less risky than GraniteShares. It trades about 0.05 of its potential returns per unit of risk. GraniteShares 3x Long is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  5,596  in GraniteShares 3x Long on September 15, 2024 and sell it today you would earn a total of  4,437  from holding GraniteShares 3x Long or generate 79.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.46%
Values	Daily Returns

Microsoft  vs.  GraniteShares 3x Long

Microsoft

Risk-Adjusted Performance

4 of 100

Insignificant

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 latest stock price uproar, may contribute to short-horizon losses for the private investors.

GraniteShares 3x Long

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in GraniteShares 3x Long are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, GraniteShares unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and GraniteShares

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

The idea behind Microsoft and GraniteShares 3x Long 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.