Correlation Between Microsoft and GPS Participaes

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

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

Diversification Opportunities for Microsoft and GPS Participaes

-0.88

Correlation Coefficient

Microsoft  GPS Participaes

Pay attention - limited upside

The 3 months correlation between Microsoft and GPS is -0.88. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and GPS Participaes e in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GPS Participaes e 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 GPS Participaes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GPS Participaes e has no effect on the direction of Microsoft i.e., Microsoft and GPS Participaes go up and down completely randomly.

Pair Corralation between Microsoft and GPS Participaes

Assuming the 90 days trading horizon Microsoft is expected to generate 0.86 times more return on investment than GPS Participaes. However, Microsoft is 1.16 times less risky than GPS Participaes. It trades about 0.14 of its potential returns per unit of risk. GPS Participaes e is currently generating about -0.2 per unit of risk. If you would invest  9,722  in Microsoft on October 9, 2024 and sell it today you would earn a total of  1,227  from holding Microsoft or generate 12.62% return on investment over 90 days.

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

Microsoft  vs.  GPS Participaes e

Microsoft

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Microsoft sustained solid returns over the last few months and may actually be approaching a breakup point.

GPS Participaes e

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GPS Participaes e has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Microsoft and GPS Participaes

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

The idea behind Microsoft and GPS Participaes e 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.