Correlation Between Microsoft and Kestrel Gold

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

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

Diversification Opportunities for Microsoft and Kestrel Gold

0.19

Correlation Coefficient

Microsoft  Kestrel Gold

Average diversification

The 3 months correlation between Microsoft and Kestrel is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Kestrel Gold in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kestrel 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 Kestrel Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kestrel Gold has no effect on the direction of Microsoft i.e., Microsoft and Kestrel Gold go up and down completely randomly.

Pair Corralation between Microsoft and Kestrel Gold

Given the investment horizon of 90 days Microsoft is expected to under-perform the Kestrel Gold. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 6.5 times less risky than Kestrel Gold. The stock trades about -0.1 of its potential returns per unit of risk. The Kestrel Gold is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  3.50  in Kestrel Gold on December 23, 2024 and sell it today you would lose (0.50) from holding Kestrel Gold or give up 14.29% of portfolio value over 90 days.

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

Microsoft  vs.  Kestrel 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.

Kestrel Gold

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Kestrel Gold are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Kestrel Gold showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Kestrel Gold

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

The idea behind Microsoft and Kestrel 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.

Check out your portfolio center.

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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.