Correlation Between Level Biotechnology and Standard Foods

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

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

Diversification Opportunities for Level Biotechnology and Standard Foods

0.79

Correlation Coefficient

Level Biotechnology  Standard Foods

Poor diversification

The 3 months correlation between Level and Standard is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Level Biotechnology and Standard Foods Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Standard Foods Corp and Level Biotechnology 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 Level Biotechnology are associated (or correlated) with Standard Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Standard Foods Corp has no effect on the direction of Level Biotechnology i.e., Level Biotechnology and Standard Foods go up and down completely randomly.

Pair Corralation between Level Biotechnology and Standard Foods

Assuming the 90 days trading horizon Level Biotechnology is expected to generate 1.21 times more return on investment than Standard Foods. However, Level Biotechnology is 1.21 times more volatile than Standard Foods Corp. It trades about 0.11 of its potential returns per unit of risk. Standard Foods Corp is currently generating about 0.03 per unit of risk. If you would invest  3,210  in Level Biotechnology on September 16, 2024 and sell it today you would earn a total of  45.00  from holding Level Biotechnology or generate 1.4% return on investment over 90 days.

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

Level Biotechnology  vs.  Standard Foods Corp

Level Biotechnology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Level Biotechnology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Level Biotechnology is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Standard Foods Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Standard Foods Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Standard Foods is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Level Biotechnology and Standard Foods

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

The idea behind Level Biotechnology and Standard Foods Corp 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.