Correlation Between Microsoft and GUARDANT HEALTH

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

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

Diversification Opportunities for Microsoft and GUARDANT HEALTH

-0.06

Correlation Coefficient

Microsoft  GUARDANT HEALTH

Good diversification

The 3 months correlation between Microsoft and GUARDANT is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and GUARDANT HEALTH CL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GUARDANT HEALTH CL 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 GUARDANT HEALTH. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GUARDANT HEALTH CL has no effect on the direction of Microsoft i.e., Microsoft and GUARDANT HEALTH go up and down completely randomly.

Pair Corralation between Microsoft and GUARDANT HEALTH

Given the investment horizon of 90 days Microsoft is expected to under-perform the GUARDANT HEALTH. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 3.0 times less risky than GUARDANT HEALTH. The stock trades about -0.11 of its potential returns per unit of risk. The GUARDANT HEALTH CL is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  2,895  in GUARDANT HEALTH CL on December 30, 2024 and sell it today you would earn a total of  1,220  from holding GUARDANT HEALTH CL or generate 42.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.88%
Values	Daily Returns

Microsoft  vs.  GUARDANT HEALTH CL

Microsoft

Risk-Adjusted Performance

Very Weak

Over the last 90 days Microsoft has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

GUARDANT HEALTH CL

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in GUARDANT HEALTH CL are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, GUARDANT HEALTH reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and GUARDANT HEALTH

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

The idea behind Microsoft and GUARDANT HEALTH CL 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.