Correlation Between Formetal and LB Investment

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

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

Diversification Opportunities for Formetal and LB Investment

0.06

Correlation Coefficient

Formetal  LB Investment

Significant diversification

The 3 months correlation between Formetal and 309960 is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Formetal Co and LB Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LB Investment and Formetal 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 Formetal Co 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 Formetal i.e., Formetal and LB Investment go up and down completely randomly.

Pair Corralation between Formetal and LB Investment

Assuming the 90 days trading horizon Formetal is expected to generate 2.57 times less return on investment than LB Investment. But when comparing it to its historical volatility, Formetal Co is 1.13 times less risky than LB Investment. It trades about 0.04 of its potential returns per unit of risk. LB Investment is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  304,500  in LB Investment on December 26, 2024 and sell it today you would earn a total of  56,000  from holding LB Investment or generate 18.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.28%
Values	Daily Returns

Formetal Co  vs.  LB Investment

Formetal

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Formetal Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Formetal may actually be approaching a critical reversion point that can send shares even higher in April 2025.

LB Investment

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in LB Investment are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, LB Investment sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Formetal and LB Investment

The main advantage of trading using opposite Formetal and LB Investment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formetal 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 Formetal Co 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.

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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.