Correlation Between Microsoft and Global X

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

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

Diversification Opportunities for Microsoft and Global X

-0.65

Correlation Coefficient

Microsoft  Global X

Excellent diversification

The 3 months correlation between Microsoft and Global is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Global X Gold in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global X Gold 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 Global X. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global X Gold has no effect on the direction of Microsoft i.e., Microsoft and Global X go up and down completely randomly.

Pair Corralation between Microsoft and Global X

Given the investment horizon of 90 days Microsoft is expected to under-perform the Global X. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.02 times less risky than Global X. The stock trades about -0.11 of its potential returns per unit of risk. The Global X Gold is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  2,502  in Global X Gold on December 30, 2024 and sell it today you would earn a total of  877.00  from holding Global X Gold or generate 35.05% return on investment over 90 days.

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

Microsoft  vs.  Global X Gold

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.

Global X Gold

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Global X Gold are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Global X displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Global X

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

The idea behind Microsoft and Global X Gold 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.