Correlation Between Microsoft and Guotai Junan

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

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

Diversification Opportunities for Microsoft and Guotai Junan

-0.19

Correlation Coefficient

Microsoft  Guotai Junan

Good diversification

The 3 months correlation between Microsoft and Guotai is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Guotai Junan Securities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guotai Junan Securities 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 Guotai Junan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guotai Junan Securities has no effect on the direction of Microsoft i.e., Microsoft and Guotai Junan go up and down completely randomly.

Pair Corralation between Microsoft and Guotai Junan

Given the investment horizon of 90 days Microsoft is expected to generate 0.71 times more return on investment than Guotai Junan. However, Microsoft is 1.4 times less risky than Guotai Junan. It trades about -0.07 of its potential returns per unit of risk. Guotai Junan Securities is currently generating about -0.14 per unit of risk. If you would invest  43,525  in Microsoft on October 22, 2024 and sell it today you would lose (622.00) from holding Microsoft or give up 1.43% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	90.48%
Values	Daily Returns

Microsoft  vs.  Guotai Junan Securities

Microsoft

Risk-Adjusted Performance

1 of 100

Weak

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

Guotai Junan Securities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Guotai Junan Securities has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Guotai Junan is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Microsoft and Guotai Junan

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

The idea behind Microsoft and Guotai Junan Securities 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.