Correlation Between Microsoft and AEye
Can any of the company-specific risk be diversified away by investing in both Microsoft and AEye 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 AEye into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and AEye Inc, you can compare the effects of market volatilities on Microsoft and AEye 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 AEye. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and AEye.
Diversification Opportunities for Microsoft and AEye
Good diversification
The 3 months correlation between Microsoft and AEye is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and AEye Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AEye 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 AEye. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AEye Inc has no effect on the direction of Microsoft i.e., Microsoft and AEye go up and down completely randomly.
Pair Corralation between Microsoft and AEye
Given the investment horizon of 90 days Microsoft is expected to generate 16.98 times less return on investment than AEye. But when comparing it to its historical volatility, Microsoft is 19.98 times less risky than AEye. It trades about 0.19 of its potential returns per unit of risk. AEye Inc is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest 0.90 in AEye Inc on September 1, 2024 and sell it today you would earn a total of 0.30 from holding AEye Inc or generate 33.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. AEye Inc
Performance |
| Timeline |
| Microsoft |
| AEye Inc |
Microsoft and AEye Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and AEye
The main advantage of trading using opposite Microsoft and AEye positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, AEye 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 AEye will offset losses from the drop in AEye's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| AEye vs. Faraday Future Intelligent | AEye vs. Innoviz Technologies | AEye vs. Aeye Inc | AEye vs. Xos Equity Warrants |
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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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