Correlation Between Microsoft and Aviat Networks

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

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

Diversification Opportunities for Microsoft and Aviat Networks

0.71

Correlation Coefficient

Microsoft  Aviat Networks

Poor diversification

The 3 months correlation between Microsoft and Aviat is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Aviat Networks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aviat Networks 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 Aviat Networks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aviat Networks has no effect on the direction of Microsoft i.e., Microsoft and Aviat Networks go up and down completely randomly.

Pair Corralation between Microsoft and Aviat Networks

Given the investment horizon of 90 days Microsoft is expected to generate 0.5 times more return on investment than Aviat Networks. However, Microsoft is 2.01 times less risky than Aviat Networks. It trades about 0.32 of its potential returns per unit of risk. Aviat Networks is currently generating about 0.03 per unit of risk. If you would invest  43,737  in Microsoft on May 8, 2025 and sell it today you would earn a total of  9,038  from holding Microsoft or generate 20.66% return on investment over 90 days.

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

Microsoft  vs.  Aviat Networks

Microsoft

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, Microsoft unveiled solid returns over the last few months and may actually be approaching a breakup point.

Aviat Networks

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Aviat Networks are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Aviat Networks is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Microsoft and Aviat Networks

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

The idea behind Microsoft and Aviat Networks 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.