Correlation Between LBA and MTL
Can any of the company-specific risk be diversified away by investing in both LBA and MTL 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 LBA and MTL into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between LBA and MTL, you can compare the effects of market volatilities on LBA and MTL 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 LBA with a short position of MTL. Check out your portfolio center. Please also check ongoing floating volatility patterns of LBA and MTL.
Diversification Opportunities for LBA and MTL
Poor diversification
The 3 months correlation between LBA and MTL is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding LBA and MTL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MTL and LBA 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 LBA are associated (or correlated) with MTL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MTL has no effect on the direction of LBA i.e., LBA and MTL go up and down completely randomly.
Pair Corralation between LBA and MTL
Assuming the 90 days trading horizon LBA is expected to generate 8.89 times more return on investment than MTL. However, LBA is 8.89 times more volatile than MTL. It trades about 0.05 of its potential returns per unit of risk. MTL is currently generating about 0.03 per unit of risk. If you would invest 0.21 in LBA on February 7, 2024 and sell it today you would lose (0.17) from holding LBA or give up 77.92% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
LBA vs. MTL
Performance |
Timeline |
LBA |
MTL |
LBA and MTL Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with LBA and MTL
The main advantage of trading using opposite LBA and MTL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LBA position performs unexpectedly, MTL 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 MTL will offset losses from the drop in MTL's long position.The idea behind LBA and MTL 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.Check out your portfolio center.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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
Other Complementary Tools
Portfolio Backtesting Avoid under-diversification and over-optimization by backtesting your portfolios | |
Content Syndication Quickly integrate customizable finance content to your own investment portal | |
Stocks Directory Find actively traded stocks across global markets | |
Price Transformation Use Price Transformation models to analyze the depth of different equity instruments across global markets | |
Stock Tickers Use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites | |
Bonds Directory Find actively traded corporate debentures issued by US companies | |
CEOs Directory Screen CEOs from public companies around the world | |
Economic Indicators Top statistical indicators that provide insights into how an economy is performing | |
Crypto Correlations Use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins | |
Portfolio Comparator Compare the composition, asset allocations and performance of any two portfolios in your account | |
Risk-Return Analysis View associations between returns expected from investment and the risk you assume |