Correlation Between Microsoft and Gold Bullion

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

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

Diversification Opportunities for Microsoft and Gold Bullion

-0.13

Correlation Coefficient

Microsoft  Gold Bullion

Good diversification

The 3 months correlation between Microsoft and Gold is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and The Gold Bullion in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gold Bullion 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 Bullion. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gold Bullion has no effect on the direction of Microsoft i.e., Microsoft and Gold Bullion go up and down completely randomly.

Pair Corralation between Microsoft and Gold Bullion

Given the investment horizon of 90 days Microsoft is expected to generate 1.27 times more return on investment than Gold Bullion. However, Microsoft is 1.27 times more volatile than The Gold Bullion. It trades about 0.06 of its potential returns per unit of risk. The Gold Bullion is currently generating about 0.06 per unit of risk. If you would invest  42,615  in Microsoft on September 12, 2024 and sell it today you would earn a total of  1,718  from holding Microsoft or generate 4.03% return on investment over 90 days.

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

Microsoft  vs.  The Gold Bullion

Microsoft

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 4 (%) 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.

Gold Bullion

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in The Gold Bullion are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Gold Bullion 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 Gold Bullion

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

The idea behind Microsoft and The Gold Bullion 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .