Correlation Between Bread Financial and LPL Financial

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

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

Diversification Opportunities for Bread Financial and LPL Financial

0.96

Correlation Coefficient

Bread Financial  LPL Financial

Almost no diversification

The 3 months correlation between Bread and LPL is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Bread Financial Holdings and LPL Financial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LPL Financial Holdings and Bread Financial 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 Bread Financial Holdings are associated (or correlated) with LPL Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LPL Financial Holdings has no effect on the direction of Bread Financial i.e., Bread Financial and LPL Financial go up and down completely randomly.

Pair Corralation between Bread Financial and LPL Financial

Assuming the 90 days trading horizon Bread Financial is expected to generate 1.02 times less return on investment than LPL Financial. In addition to that, Bread Financial is 1.79 times more volatile than LPL Financial Holdings. It trades about 0.19 of its total potential returns per unit of risk. LPL Financial Holdings is currently generating about 0.34 per unit of volatility. If you would invest  8,874  in LPL Financial Holdings on October 6, 2024 and sell it today you would earn a total of  2,572  from holding LPL Financial Holdings or generate 28.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	97.37%
Values	Daily Returns

Bread Financial Holdings  vs.  LPL Financial Holdings

Bread Financial Holdings

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bread Financial Holdings are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, Bread Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

LPL Financial Holdings

Risk-Adjusted Performance

28 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in LPL Financial Holdings are ranked lower than 28 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, LPL Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bread Financial and LPL Financial

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

The idea behind Bread Financial Holdings and LPL Financial Holdings 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.