Correlation Between Microsoft and GoGold Resources

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

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

Diversification Opportunities for Microsoft and GoGold Resources

-0.8

Correlation Coefficient

Microsoft  GoGold Resources

Pay attention - limited upside

The 3 months correlation between Microsoft and GoGold is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and GoGold Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GoGold Resources 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 GoGold Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GoGold Resources has no effect on the direction of Microsoft i.e., Microsoft and GoGold Resources go up and down completely randomly.

Pair Corralation between Microsoft and GoGold Resources

Given the investment horizon of 90 days Microsoft is expected to under-perform the GoGold Resources. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 2.22 times less risky than GoGold Resources. The stock trades about -0.11 of its potential returns per unit of risk. The GoGold Resources is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  75.00  in GoGold Resources on December 30, 2024 and sell it today you would earn a total of  49.00  from holding GoGold Resources or generate 65.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Microsoft  vs.  GoGold Resources

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.

GoGold Resources

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in GoGold Resources are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, GoGold Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and GoGold Resources

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

The idea behind Microsoft and GoGold Resources 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.