Correlation Between AES and Microsoft

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Can any of the company-specific risk be diversified away by investing in both AES and Microsoft 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 AES and Microsoft into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between The AES and Microsoft, you can compare the effects of market volatilities on AES and Microsoft 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 AES with a short position of Microsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of AES and Microsoft.

Diversification Opportunities for AES and Microsoft

-0.9
  Correlation Coefficient

Pay attention - limited upside

The 3 months correlation between AES and Microsoft is -0.9. Overlapping area represents the amount of risk that can be diversified away by holding The AES and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and AES 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 The AES are associated (or correlated) with Microsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft has no effect on the direction of AES i.e., AES and Microsoft go up and down completely randomly.

Pair Corralation between AES and Microsoft

Assuming the 90 days trading horizon AES is expected to generate 23.75 times less return on investment than Microsoft. In addition to that, AES is 1.84 times more volatile than Microsoft. It trades about 0.0 of its total potential returns per unit of risk. Microsoft is currently generating about 0.14 per unit of volatility. If you would invest  30,074  in Microsoft on December 29, 2023 and sell it today you would earn a total of  8,871  from holding Microsoft or generate 29.5% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

The AES  vs.  Microsoft

 Performance 
       Timeline  
AES 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days The AES has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.
Microsoft 

Risk-Adjusted Performance

13 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Microsoft reported solid returns over the last few months and may actually be approaching a breakup point.

AES and Microsoft Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with AES and Microsoft

The main advantage of trading using opposite AES and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AES position performs unexpectedly, Microsoft 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 Microsoft will offset losses from the drop in Microsoft's long position.
The idea behind The AES and Microsoft 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.

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