Correlation Between Microsoft and GILEAD

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

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

Diversification Opportunities for Microsoft and GILEAD

0.07

Correlation Coefficient

Microsoft  GILEAD

Significant diversification

The 3 months correlation between Microsoft and GILEAD is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and GILEAD SCIENCES INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GILEAD SCIENCES INC 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 GILEAD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GILEAD SCIENCES INC has no effect on the direction of Microsoft i.e., Microsoft and GILEAD go up and down completely randomly.

Pair Corralation between Microsoft and GILEAD

Given the investment horizon of 90 days Microsoft is expected to generate 13.22 times more return on investment than GILEAD. However, Microsoft is 13.22 times more volatile than GILEAD SCIENCES INC. It trades about 0.05 of its potential returns per unit of risk. GILEAD SCIENCES INC is currently generating about 0.05 per unit of risk. If you would invest  40,872  in Microsoft on October 6, 2024 and sell it today you would earn a total of  1,463  from holding Microsoft or generate 3.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.77%
Values	Daily Returns

Microsoft  vs.  GILEAD SCIENCES INC

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.

GILEAD SCIENCES INC

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in GILEAD SCIENCES INC are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, GILEAD is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Microsoft and GILEAD

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

The idea behind Microsoft and GILEAD SCIENCES INC 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.