Correlation Between Lake Materials and EBEST Investment

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

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

Diversification Opportunities for Lake Materials and EBEST Investment

0.82

Correlation Coefficient

Lake Materials  EBEST Investment

Very poor diversification

The 3 months correlation between Lake and EBEST is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Lake Materials Co and EBEST Investment Securities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EBEST Investment Sec and Lake Materials 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 Lake Materials Co are associated (or correlated) with EBEST Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EBEST Investment Sec has no effect on the direction of Lake Materials i.e., Lake Materials and EBEST Investment go up and down completely randomly.

Pair Corralation between Lake Materials and EBEST Investment

Assuming the 90 days trading horizon Lake Materials Co is expected to under-perform the EBEST Investment. In addition to that, Lake Materials is 2.06 times more volatile than EBEST Investment Securities. It trades about -0.07 of its total potential returns per unit of risk. EBEST Investment Securities is currently generating about -0.08 per unit of volatility. If you would invest  441,000  in EBEST Investment Securities on October 26, 2024 and sell it today you would lose (39,500) from holding EBEST Investment Securities or give up 8.96% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.39%
Values	Daily Returns

Lake Materials Co  vs.  EBEST Investment Securities

Lake Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lake Materials Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

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.

Pair Trading with Lake Materials and EBEST Investment

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

The idea behind Lake Materials Co and EBEST Investment Securities 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.