Correlation Between EBEST Investment and LB Investment

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

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

Diversification Opportunities for EBEST Investment and LB Investment

0.85

Correlation Coefficient

EBEST Investment  LB Investment

Very poor diversification

The 3 months correlation between EBEST and 309960 is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding EBEST Investment Securities and LB Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LB Investment and EBEST Investment 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 EBEST Investment Securities are associated (or correlated) with LB Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LB Investment has no effect on the direction of EBEST Investment i.e., EBEST Investment and LB Investment go up and down completely randomly.

Pair Corralation between EBEST Investment and LB Investment

Assuming the 90 days trading horizon EBEST Investment Securities is expected to under-perform the LB Investment. But the stock apears to be less risky and, when comparing its historical volatility, EBEST Investment Securities is 1.15 times less risky than LB Investment. The stock trades about -0.15 of its potential returns per unit of risk. The LB Investment is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest  391,500  in LB Investment on September 5, 2024 and sell it today you would lose (38,500) from holding LB Investment or give up 9.83% of portfolio value over 90 days.

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

EBEST Investment Securities  vs.  LB Investment

EBEST Investment Sec

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EBEST Investment Securities has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

LB Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LB Investment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with EBEST Investment and LB Investment

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

The idea behind EBEST Investment Securities and LB Investment 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.