Correlation Between Knight Therapeutics and Aecon

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

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

Diversification Opportunities for Knight Therapeutics and Aecon

-0.75

Correlation Coefficient

Knight Therapeutics  Aecon

Pay attention - limited upside

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

Pair Corralation between Knight Therapeutics and Aecon

Assuming the 90 days trading horizon Knight Therapeutics is expected to under-perform the Aecon. But the stock apears to be less risky and, when comparing its historical volatility, Knight Therapeutics is 1.29 times less risky than Aecon. The stock trades about -0.02 of its potential returns per unit of risk. The Aecon Group is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  1,809  in Aecon Group on September 4, 2024 and sell it today you would earn a total of  1,056  from holding Aecon Group or generate 58.37% return on investment over 90 days.

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

Knight Therapeutics  vs.  Aecon Group

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.

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.

Pair Trading with Knight Therapeutics and Aecon

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

The idea behind Knight Therapeutics and Aecon Group 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.