Correlation Between Microsoft and GEAR4MUSIC

Can any of the company-specific risk be diversified away by investing in both Microsoft and GEAR4MUSIC 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 GEAR4MUSIC into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Microsoft and GEAR4MUSIC LS 10, you can compare the effects of market volatilities on Microsoft and GEAR4MUSIC 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 GEAR4MUSIC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and GEAR4MUSIC.

Diversification Opportunities for Microsoft and GEAR4MUSIC

-0.15

Correlation Coefficient

Microsoft  GEAR4MUSIC

Good diversification

The 3 months correlation between Microsoft and GEAR4MUSIC is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and GEAR4MUSIC LS 10 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GEAR4MUSIC LS 10 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 GEAR4MUSIC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GEAR4MUSIC LS 10 has no effect on the direction of Microsoft i.e., Microsoft and GEAR4MUSIC go up and down completely randomly.

Pair Corralation between Microsoft and GEAR4MUSIC

Given the investment horizon of 90 days Microsoft is expected to generate 1.06 times less return on investment than GEAR4MUSIC. But when comparing it to its historical volatility, Microsoft is 2.29 times less risky than GEAR4MUSIC. It trades about 0.08 of its potential returns per unit of risk. GEAR4MUSIC LS 10 is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  134.00  in GEAR4MUSIC LS 10 on September 1, 2024 and sell it today you would earn a total of  61.00  from holding GEAR4MUSIC LS 10 or generate 45.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.02%
Values	Daily Returns

Microsoft  vs.  GEAR4MUSIC LS 10

Microsoft

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 3 (%) 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.

GEAR4MUSIC LS 10

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GEAR4MUSIC LS 10 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Microsoft and GEAR4MUSIC

The main advantage of trading using opposite Microsoft and GEAR4MUSIC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, GEAR4MUSIC 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 GEAR4MUSIC will offset losses from the drop in GEAR4MUSIC's long position.

The idea behind Microsoft and GEAR4MUSIC LS 10 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.