Correlation Between Microsoft and Aecon

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

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

Diversification Opportunities for Microsoft and Aecon

0.88

Correlation Coefficient

Microsoft  Aecon

Very poor diversification

The 3 months correlation between Microsoft and Aecon is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Aecon Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aecon Group 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 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 Microsoft i.e., Microsoft and Aecon go up and down completely randomly.

Pair Corralation between Microsoft and Aecon

Given the investment horizon of 90 days Microsoft is expected to generate 0.55 times more return on investment than Aecon. However, Microsoft is 1.83 times less risky than Aecon. It trades about -0.11 of its potential returns per unit of risk. Aecon Group is currently generating about -0.21 per unit of risk. If you would invest  42,398  in Microsoft on December 30, 2024 and sell it today you would lose (4,518) from holding Microsoft or give up 10.66% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	96.88%
Values	Daily Returns

Microsoft  vs.  Aecon Group

Microsoft

Risk-Adjusted Performance

Very Weak

Over the last 90 days Microsoft has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Aecon Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Aecon Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's technical and fundamental indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Microsoft and Aecon

The main advantage of trading using opposite Microsoft and Aecon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft 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 Microsoft 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.