Correlation Between Aecon and Knight Therapeutics

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

By analyzing existing cross correlation between Aecon Group and Knight Therapeutics, you can compare the effects of market volatilities on Aecon and Knight Therapeutics 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 Aecon with a short position of Knight Therapeutics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aecon and Knight Therapeutics.

Diversification Opportunities for Aecon and Knight Therapeutics

-0.75

Correlation Coefficient

Aecon  Knight Therapeutics

Pay attention - limited upside

The 3 months correlation between Aecon and Knight is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding Aecon Group and Knight Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Knight Therapeutics and Aecon 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 Aecon Group are associated (or correlated) with Knight Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Knight Therapeutics has no effect on the direction of Aecon i.e., Aecon and Knight Therapeutics go up and down completely randomly.

Pair Corralation between Aecon and Knight Therapeutics

Assuming the 90 days trading horizon Aecon Group is expected to generate 0.57 times more return on investment than Knight Therapeutics. However, Aecon Group is 1.76 times less risky than Knight Therapeutics. It trades about -0.05 of its potential returns per unit of risk. Knight Therapeutics is currently generating about -0.06 per unit of risk. If you would invest  2,859  in Aecon Group on September 4, 2024 and sell it today you would lose (59.00) from holding Aecon Group or give up 2.06% of portfolio value over 90 days.

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

Aecon Group  vs.  Knight Therapeutics

Aecon Group

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Aecon Group are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, Aecon displayed solid returns over the last few months and may actually be approaching a breakup point.

Knight Therapeutics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Knight Therapeutics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Knight Therapeutics is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Aecon and Knight Therapeutics

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

The idea behind Aecon Group and Knight Therapeutics 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.