Correlation Between Microsoft and GENERAL

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

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

Diversification Opportunities for Microsoft and GENERAL

0.39

Correlation Coefficient

Microsoft  GENERAL

Weak diversification

The 3 months correlation between Microsoft and GENERAL is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and GENERAL ELEC CAP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GENERAL ELEC CAP 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 GENERAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GENERAL ELEC CAP has no effect on the direction of Microsoft i.e., Microsoft and GENERAL go up and down completely randomly.

Pair Corralation between Microsoft and GENERAL

Given the investment horizon of 90 days Microsoft is expected to generate 1.36 times less return on investment than GENERAL. In addition to that, Microsoft is 1.83 times more volatile than GENERAL ELEC CAP. It trades about 0.06 of its total potential returns per unit of risk. GENERAL ELEC CAP is currently generating about 0.14 per unit of volatility. If you would invest  9,690  in GENERAL ELEC CAP on October 25, 2024 and sell it today you would earn a total of  187.00  from holding GENERAL ELEC CAP or generate 1.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	28.33%
Values	Daily Returns

Microsoft  vs.  GENERAL ELEC CAP

Microsoft

Risk-Adjusted Performance

4 of 100

Insignificant

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.

GENERAL ELEC CAP

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in GENERAL ELEC CAP are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, GENERAL may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Microsoft and GENERAL

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

The idea behind Microsoft and GENERAL ELEC CAP 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.