Correlation Between Microsoft and GOLDMAN SACHS

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

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

Diversification Opportunities for Microsoft and GOLDMAN SACHS

0.44

Correlation Coefficient

Microsoft  GOLDMAN SACHS

Very weak diversification

The 3 months correlation between Microsoft and GOLDMAN is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and GOLDMAN SACHS CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GOLDMAN SACHS CDR 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 GOLDMAN SACHS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GOLDMAN SACHS CDR has no effect on the direction of Microsoft i.e., Microsoft and GOLDMAN SACHS go up and down completely randomly.

Pair Corralation between Microsoft and GOLDMAN SACHS

Given the investment horizon of 90 days Microsoft is expected to under-perform the GOLDMAN SACHS. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.28 times less risky than GOLDMAN SACHS. The stock trades about -0.11 of its potential returns per unit of risk. The GOLDMAN SACHS CDR is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  2,843  in GOLDMAN SACHS CDR on December 30, 2024 and sell it today you would lose (160.00) from holding GOLDMAN SACHS CDR or give up 5.63% of portfolio value over 90 days.

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

Microsoft  vs.  GOLDMAN SACHS CDR

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.

GOLDMAN SACHS CDR

Risk-Adjusted Performance

Very Weak

Over the last 90 days GOLDMAN SACHS CDR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, GOLDMAN SACHS is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Microsoft and GOLDMAN SACHS

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

The idea behind Microsoft and GOLDMAN SACHS CDR 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.