Correlation Between Microsoft and Lees Pharmaceutical

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

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

Diversification Opportunities for Microsoft and Lees Pharmaceutical

0.09

Correlation Coefficient

Microsoft  Lees Pharmaceutical

Significant diversification

The 3 months correlation between Microsoft and Lees is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Lees Pharmaceutical Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lees Pharmaceutical 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 Lees Pharmaceutical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lees Pharmaceutical has no effect on the direction of Microsoft i.e., Microsoft and Lees Pharmaceutical go up and down completely randomly.

Pair Corralation between Microsoft and Lees Pharmaceutical

Given the investment horizon of 90 days Microsoft is expected to generate 0.02 times more return on investment than Lees Pharmaceutical. However, Microsoft is 63.45 times less risky than Lees Pharmaceutical. It trades about 0.1 of its potential returns per unit of risk. Lees Pharmaceutical Holdings is currently generating about -0.1 per unit of risk. If you would invest  22,345  in Microsoft on September 28, 2024 and sell it today you would earn a total of  21,466  from holding Microsoft or generate 96.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	25.45%
Values	Daily Returns

Microsoft  vs.  Lees Pharmaceutical Holdings

Microsoft

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 2 (%) 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 current stock price uproar, may contribute to short-horizon losses for the private investors.

Lees Pharmaceutical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lees Pharmaceutical Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Lees Pharmaceutical is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Microsoft and Lees Pharmaceutical

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

The idea behind Microsoft and Lees Pharmaceutical Holdings 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.