Correlation Between Microsoft and Gold Springs

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

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

Diversification Opportunities for Microsoft and Gold Springs

0.4

Correlation Coefficient

Microsoft  Gold Springs

Very weak diversification

The 3 months correlation between Microsoft and Gold is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Gold Springs Resource in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gold Springs Resource 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 Gold Springs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gold Springs Resource has no effect on the direction of Microsoft i.e., Microsoft and Gold Springs go up and down completely randomly.

Pair Corralation between Microsoft and Gold Springs

Given the investment horizon of 90 days Microsoft is expected to generate 0.24 times more return on investment than Gold Springs. However, Microsoft is 4.21 times less risky than Gold Springs. It trades about -0.11 of its potential returns per unit of risk. Gold Springs Resource is currently generating about -0.03 per unit of risk. If you would invest  42,398  in Microsoft on December 29, 2024 and sell it today you would lose (4,518) from holding Microsoft or give up 10.66% of portfolio value over 90 days.

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

Microsoft  vs.  Gold Springs Resource

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.

Gold Springs Resource

Risk-Adjusted Performance

Very Weak

Over the last 90 days Gold Springs Resource has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Microsoft and Gold Springs

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

The idea behind Microsoft and Gold Springs Resource 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 Global Correlations module to find global opportunities by holding instruments from different markets.