Correlation Between Aluminum and Microsoft

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

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

Diversification Opportunities for Aluminum and Microsoft

0.83

Correlation Coefficient

Aluminum  Microsoft

Very poor diversification

The 3 months correlation between Aluminum and Microsoft is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Aluminum of and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and Aluminum 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 Aluminum of 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 Aluminum i.e., Aluminum and Microsoft go up and down completely randomly.

Pair Corralation between Aluminum and Microsoft

Assuming the 90 days horizon Aluminum is expected to generate 1.03 times less return on investment than Microsoft. In addition to that, Aluminum is 1.45 times more volatile than Microsoft. It trades about 0.2 of its total potential returns per unit of risk. Microsoft is currently generating about 0.3 per unit of volatility. If you would invest  31,682  in Microsoft on April 20, 2025 and sell it today you would earn a total of  12,108  from holding Microsoft or generate 38.22% return on investment over 90 days.

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

Aluminum of  vs.  Microsoft

Aluminum

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Aluminum of are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Aluminum reported solid returns over the last few months and may actually be approaching a breakup point.

Microsoft

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain technical and fundamental indicators, Microsoft displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Aluminum and Microsoft

The main advantage of trading using opposite Aluminum and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aluminum 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 Aluminum of 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.