Correlation Between Legacy Education and Microsoft

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

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

Diversification Opportunities for Legacy Education and Microsoft

0.64

Correlation Coefficient

Legacy Education  Microsoft

Poor diversification

The 3 months correlation between Legacy and Microsoft is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Legacy Education and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and Legacy Education 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 Legacy Education 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 Legacy Education i.e., Legacy Education and Microsoft go up and down completely randomly.

Pair Corralation between Legacy Education and Microsoft

Given the investment horizon of 90 days Legacy Education is expected to generate 2.87 times more return on investment than Microsoft. However, Legacy Education is 2.87 times more volatile than Microsoft. It trades about -0.02 of its potential returns per unit of risk. Microsoft is currently generating about -0.11 per unit of risk. If you would invest  820.00  in Legacy Education on December 30, 2024 and sell it today you would lose (89.00) from holding Legacy Education or give up 10.85% of portfolio value over 90 days.

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

Legacy Education  vs.  Microsoft

Legacy Education

Risk-Adjusted Performance

Very Weak

Over the last 90 days Legacy Education has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, Legacy Education is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Microsoft

Risk-Adjusted Performance

Very Weak

Over the last 90 days Microsoft has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Legacy Education and Microsoft

The main advantage of trading using opposite Legacy Education and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Legacy Education 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 Legacy Education 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.

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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.