Correlation Between Microsoft and Global Tech

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

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

Diversification Opportunities for Microsoft and Global Tech

0.03

Correlation Coefficient

Microsoft  Global Tech

Significant diversification

The 3 months correlation between Microsoft and Global is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Global Tech Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Tech Industries 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 Tech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Tech Industries has no effect on the direction of Microsoft i.e., Microsoft and Global Tech go up and down completely randomly.

Pair Corralation between Microsoft and Global Tech

Given the investment horizon of 90 days Microsoft is expected to generate 33.93 times less return on investment than Global Tech. But when comparing it to its historical volatility, Microsoft is 34.85 times less risky than Global Tech. It trades about 0.19 of its potential returns per unit of risk. Global Tech Industries is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  2.50  in Global Tech Industries on September 1, 2024 and sell it today you would earn a total of  0.51  from holding Global Tech Industries or generate 20.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Microsoft  vs.  Global Tech Industries

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.

Global Tech Industries

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Global Tech Industries are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite fairly abnormal forward indicators, Global Tech demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Global Tech

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

The idea behind Microsoft and Global Tech Industries 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.