Correlation Between Microsoft and Aspen Technology
Can any of the company-specific risk be diversified away by investing in both Microsoft and Aspen Technology 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 Aspen Technology into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Aspen Technology, you can compare the effects of market volatilities on Microsoft and Aspen Technology 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 Aspen Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Aspen Technology.
Diversification Opportunities for Microsoft and Aspen Technology
0.52 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Microsoft and Aspen is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Aspen Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aspen Technology 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 Aspen Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aspen Technology has no effect on the direction of Microsoft i.e., Microsoft and Aspen Technology go up and down completely randomly.
Pair Corralation between Microsoft and Aspen Technology
Given the investment horizon of 90 days Microsoft is expected to under-perform the Aspen Technology. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.46 times less risky than Aspen Technology. The stock trades about -0.06 of its potential returns per unit of risk. The Aspen Technology is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 19,502 in Aspen Technology on February 3, 2024 and sell it today you would earn a total of 635.00 from holding Aspen Technology or generate 3.26% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Microsoft vs. Aspen Technology
Performance |
Timeline |
Microsoft |
Aspen Technology |
Microsoft and Aspen Technology Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Microsoft and Aspen Technology
The main advantage of trading using opposite Microsoft and Aspen Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Aspen Technology 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 Aspen Technology will offset losses from the drop in Aspen Technology's long position.Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated | Microsoft vs. Crowdstrike Holdings | Microsoft vs. Cloudflare |
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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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.
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