Correlation Between Microsoft and LANDSEA HOMES

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

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

Diversification Opportunities for Microsoft and LANDSEA HOMES

0.71

Correlation Coefficient

Microsoft  LANDSEA HOMES

Poor diversification

The 3 months correlation between Microsoft and LANDSEA is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and LANDSEA HOMES P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LANDSEA HOMES P 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 LANDSEA HOMES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LANDSEA HOMES P has no effect on the direction of Microsoft i.e., Microsoft and LANDSEA HOMES go up and down completely randomly.

Pair Corralation between Microsoft and LANDSEA HOMES

Assuming the 90 days horizon Microsoft is expected to generate 3.03 times less return on investment than LANDSEA HOMES. But when comparing it to its historical volatility, Microsoft is 5.7 times less risky than LANDSEA HOMES. It trades about 0.29 of its potential returns per unit of risk. LANDSEA HOMES P is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  505.00  in LANDSEA HOMES P on April 20, 2025 and sell it today you would earn a total of  460.00  from holding LANDSEA HOMES P or generate 91.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	85.71%
Values	Daily Returns

Microsoft  vs.  LANDSEA HOMES P

Microsoft

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Microsoft reported solid returns over the last few months and may actually be approaching a breakup point.

LANDSEA HOMES P

Risk-Adjusted Performance

Good

Over the last 90 days LANDSEA HOMES P has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly unsteady basic indicators, LANDSEA HOMES reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and LANDSEA HOMES

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

The idea behind Microsoft and LANDSEA HOMES P 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.