Correlation Between LB Investment and HMM

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

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

Diversification Opportunities for LB Investment and HMM

0.7

Correlation Coefficient

LB Investment  HMM

Poor diversification

The 3 months correlation between 309960 and HMM is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding LB Investment and HMM Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HMM Co and LB 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 LB Investment are associated (or correlated) with HMM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HMM Co has no effect on the direction of LB Investment i.e., LB Investment and HMM go up and down completely randomly.

Pair Corralation between LB Investment and HMM

Assuming the 90 days trading horizon LB Investment is expected to generate 1.03 times less return on investment than HMM. In addition to that, LB Investment is 1.7 times more volatile than HMM Co. It trades about 0.06 of its total potential returns per unit of risk. HMM Co is currently generating about 0.1 per unit of volatility. If you would invest  1,713,020  in HMM Co on December 30, 2024 and sell it today you would earn a total of  253,980  from holding HMM Co or generate 14.83% return on investment over 90 days.

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

LB Investment  vs.  HMM Co

LB Investment

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in LB Investment are ranked lower than 4 (%) 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.

HMM Co

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HMM Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, HMM sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with LB Investment and HMM

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

The idea behind LB Investment and HMM Co 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..