Correlation Between Microsoft Corp and New Found

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

By analyzing existing cross correlation between Microsoft Corp CDR and New Found Gold, you can compare the effects of market volatilities on Microsoft Corp and New Found 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 Corp with a short position of New Found. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft Corp and New Found.

Diversification Opportunities for Microsoft Corp and New Found

-0.43

Correlation Coefficient

Microsoft Corp  New Found

Very good diversification

The 3 months correlation between Microsoft and New is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft Corp CDR and New Found Gold in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Found Gold and Microsoft Corp 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 Corp CDR are associated (or correlated) with New Found. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Found Gold has no effect on the direction of Microsoft Corp i.e., Microsoft Corp and New Found go up and down completely randomly.

Pair Corralation between Microsoft Corp and New Found

Assuming the 90 days trading horizon Microsoft Corp CDR is expected to generate 0.32 times more return on investment than New Found. However, Microsoft Corp CDR is 3.17 times less risky than New Found. It trades about -0.04 of its potential returns per unit of risk. New Found Gold is currently generating about -0.06 per unit of risk. If you would invest  3,371  in Microsoft Corp CDR on September 29, 2024 and sell it today you would lose (223.00) from holding Microsoft Corp CDR or give up 6.62% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.2%
Values	Daily Returns

Microsoft Corp CDR  vs.  New Found Gold

Microsoft Corp CDR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Microsoft Corp CDR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Microsoft Corp is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

New Found Gold

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days New Found Gold has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Microsoft Corp and New Found

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

The idea behind Microsoft Corp CDR and New Found Gold 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.