Correlation Between Microsoft and Leef Brands

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

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

Diversification Opportunities for Microsoft and Leef Brands

-0.06

Correlation Coefficient

Microsoft  Leef Brands

Good diversification

The 3 months correlation between Microsoft and Leef is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Leef Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leef Brands 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 Leef Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Leef Brands has no effect on the direction of Microsoft i.e., Microsoft and Leef Brands go up and down completely randomly.

Pair Corralation between Microsoft and Leef Brands

Given the investment horizon of 90 days Microsoft is expected to generate 34.87 times less return on investment than Leef Brands. But when comparing it to its historical volatility, Microsoft is 11.32 times less risky than Leef Brands. It trades about 0.05 of its potential returns per unit of risk. Leef Brands is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  6.67  in Leef Brands on September 2, 2024 and sell it today you would earn a total of  8.33  from holding Leef Brands or generate 124.89% return on investment over 90 days.

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

Microsoft  vs.  Leef Brands

Microsoft

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Leef Brands

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Leef Brands are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Leef Brands reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Leef Brands

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

The idea behind Microsoft and Leef Brands 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.