Correlation Between New Leaf and Benchmark Botanics

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

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

Diversification Opportunities for New Leaf and Benchmark Botanics

0.0

Correlation Coefficient

New Leaf  Benchmark Botanics

Pay attention - limited upside

The 3 months correlation between New and Benchmark is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding New Leaf Ventures and Benchmark Botanics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Benchmark Botanics and New Leaf 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 New Leaf Ventures are associated (or correlated) with Benchmark Botanics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Benchmark Botanics has no effect on the direction of New Leaf i.e., New Leaf and Benchmark Botanics go up and down completely randomly.

Pair Corralation between New Leaf and Benchmark Botanics

Assuming the 90 days horizon New Leaf Ventures is expected to generate 1.81 times more return on investment than Benchmark Botanics. However, New Leaf is 1.81 times more volatile than Benchmark Botanics. It trades about 0.07 of its potential returns per unit of risk. Benchmark Botanics is currently generating about 0.04 per unit of risk. If you would invest  12.00  in New Leaf Ventures on September 14, 2024 and sell it today you would lose (11.60) from holding New Leaf Ventures or give up 96.67% of portfolio value over 90 days.

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

New Leaf Ventures  vs.  Benchmark Botanics

New Leaf Ventures

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in New Leaf Ventures are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, New Leaf reported solid returns over the last few months and may actually be approaching a breakup point.

Benchmark Botanics

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with New Leaf and Benchmark Botanics

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

The idea behind New Leaf Ventures and Benchmark Botanics 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.