Correlation Between Microsoft and Arcosa

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

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

Diversification Opportunities for Microsoft and Arcosa

0.41

Correlation Coefficient

Microsoft  Arcosa

Very weak diversification

The 3 months correlation between Microsoft and Arcosa is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Arcosa Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arcosa Inc 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 Arcosa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arcosa Inc has no effect on the direction of Microsoft i.e., Microsoft and Arcosa go up and down completely randomly.

Pair Corralation between Microsoft and Arcosa

Given the investment horizon of 90 days Microsoft is expected to generate 1.62 times less return on investment than Arcosa. But when comparing it to its historical volatility, Microsoft is 1.6 times less risky than Arcosa. It trades about 0.06 of its potential returns per unit of risk. Arcosa Inc is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  7,481  in Arcosa Inc on September 24, 2024 and sell it today you would earn a total of  2,019  from holding Arcosa Inc or generate 26.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.42%
Values	Daily Returns

Microsoft  vs.  Arcosa Inc

Microsoft

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Arcosa Inc

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Arcosa Inc are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Arcosa reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Arcosa

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

The idea behind Microsoft and Arcosa Inc 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.