Correlation Between Biofrontera Warrants and LMF Acquisition

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

By analyzing existing cross correlation between Biofrontera Warrants and LMF Acquisition Opportunities, you can compare the effects of market volatilities on Biofrontera Warrants and LMF Acquisition 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 Biofrontera Warrants with a short position of LMF Acquisition. Check out your portfolio center. Please also check ongoing floating volatility patterns of Biofrontera Warrants and LMF Acquisition.

Diversification Opportunities for Biofrontera Warrants and LMF Acquisition

0.16

Correlation Coefficient

Biofrontera Warrants  LMF Acquisition

Average diversification

The 3 months correlation between Biofrontera and LMF is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Biofrontera Warrants and LMF Acquisition Opportunities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LMF Acquisition Oppo and Biofrontera Warrants 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 Biofrontera Warrants are associated (or correlated) with LMF Acquisition. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LMF Acquisition Oppo has no effect on the direction of Biofrontera Warrants i.e., Biofrontera Warrants and LMF Acquisition go up and down completely randomly.

Pair Corralation between Biofrontera Warrants and LMF Acquisition

Assuming the 90 days horizon Biofrontera Warrants is expected to generate 2.77 times more return on investment than LMF Acquisition. However, Biofrontera Warrants is 2.77 times more volatile than LMF Acquisition Opportunities. It trades about 0.07 of its potential returns per unit of risk. LMF Acquisition Opportunities is currently generating about 0.12 per unit of risk. If you would invest  9.37  in Biofrontera Warrants on December 30, 2024 and sell it today you would lose (3.35) from holding Biofrontera Warrants or give up 35.75% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	56.45%
Values	Daily Returns

Biofrontera Warrants  vs.  LMF Acquisition Opportunities

Biofrontera Warrants

Risk-Adjusted Performance

Modest

Over the last 90 days Biofrontera Warrants has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly inconsistent forward indicators, Biofrontera Warrants showed solid returns over the last few months and may actually be approaching a breakup point.

LMF Acquisition Oppo

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in LMF Acquisition Opportunities are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain fundamental indicators, LMF Acquisition showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Biofrontera Warrants and LMF Acquisition

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

The idea behind Biofrontera Warrants and LMF Acquisition Opportunities 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.