Correlation Between Shrapnel and LBA

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

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

Diversification Opportunities for Shrapnel and LBA

0.6

Correlation Coefficient

Shrapnel  LBA

Poor diversification

The 3 months correlation between Shrapnel and LBA is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Shrapnel and LBA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LBA and Shrapnel 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 Shrapnel are associated (or correlated) with LBA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LBA has no effect on the direction of Shrapnel i.e., Shrapnel and LBA go up and down completely randomly.

Pair Corralation between Shrapnel and LBA

Assuming the 90 days trading horizon Shrapnel is expected to generate 1.6 times less return on investment than LBA. But when comparing it to its historical volatility, Shrapnel is 1.21 times less risky than LBA. It trades about 0.04 of its potential returns per unit of risk. LBA is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  0.13  in LBA on February 7, 2024 and sell it today you would lose (0.09) from holding LBA or give up 64.73% of portfolio value over 90 days.

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

Shrapnel  vs.  LBA

Shrapnel

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shrapnel are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Shrapnel exhibited solid returns over the last few months and may actually be approaching a breakup point.

LBA

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in LBA are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, LBA exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shrapnel and LBA

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

The idea behind Shrapnel and LBA 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.