Correlation Between XLM and LEO

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

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

Diversification Opportunities for XLM and LEO

-0.1

Correlation Coefficient

XLM  LEO

Good diversification

The 3 months correlation between XLM and LEO is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding XLM and LEO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LEO and XLM 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 XLM are associated (or correlated) with LEO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LEO has no effect on the direction of XLM i.e., XLM and LEO go up and down completely randomly.

Pair Corralation between XLM and LEO

Assuming the 90 days trading horizon XLM is expected to generate 2.8 times more return on investment than LEO. However, XLM is 2.8 times more volatile than LEO. It trades about 0.14 of its potential returns per unit of risk. LEO is currently generating about 0.0 per unit of risk. If you would invest  29.00  in XLM on April 25, 2025 and sell it today you would earn a total of  14.00  from holding XLM or generate 48.28% return on investment over 90 days.

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

XLM  vs.  LEO

XLM

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in XLM are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady primary indicators, XLM exhibited solid returns over the last few months and may actually be approaching a breakup point.

LEO

Risk-Adjusted Performance

Very Weak

Over the last 90 days LEO has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, LEO is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with XLM and LEO

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

The idea behind XLM and LEO 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.