Correlation Between Microsoft and Great West

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

By analyzing existing cross correlation between Microsoft and Great West Lifetime 2020, you can compare the effects of market volatilities on Microsoft and Great West 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 Great West. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Great West.

Diversification Opportunities for Microsoft and Great West

0.56

Correlation Coefficient

Microsoft  Great West

Very weak diversification

The 3 months correlation between Microsoft and Great is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Great West Lifetime 2020 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Great West Lifetime 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 Great West. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Great West Lifetime has no effect on the direction of Microsoft i.e., Microsoft and Great West go up and down completely randomly.

Pair Corralation between Microsoft and Great West

Given the investment horizon of 90 days Microsoft is expected to generate 3.32 times more return on investment than Great West. However, Microsoft is 3.32 times more volatile than Great West Lifetime 2020. It trades about 0.42 of its potential returns per unit of risk. Great West Lifetime 2020 is currently generating about 0.22 per unit of risk. If you would invest  41,493  in Microsoft on September 17, 2024 and sell it today you would earn a total of  3,234  from holding Microsoft or generate 7.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

Microsoft  vs.  Great West Lifetime 2020

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 current stock price uproar, may contribute to short-horizon losses for the private investors.

Great West Lifetime

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Great West Lifetime 2020 are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Great West is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Microsoft and Great West

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

The idea behind Microsoft and Great West Lifetime 2020 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.