Correlation Between BankInvest Optima and LED IBond

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

By analyzing existing cross correlation between BankInvest Optima 30 and LED iBond International, you can compare the effects of market volatilities on BankInvest Optima and LED IBond 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 BankInvest Optima with a short position of LED IBond. Check out your portfolio center. Please also check ongoing floating volatility patterns of BankInvest Optima and LED IBond.

Diversification Opportunities for BankInvest Optima and LED IBond

0.75

Correlation Coefficient

BankInvest Optima  LED IBond

Poor diversification

The 3 months correlation between BankInvest and LED is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding BankInvest Optima 30 and LED iBond International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LED iBond International and BankInvest Optima 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 BankInvest Optima 30 are associated (or correlated) with LED IBond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LED iBond International has no effect on the direction of BankInvest Optima i.e., BankInvest Optima and LED IBond go up and down completely randomly.

Pair Corralation between BankInvest Optima and LED IBond

Assuming the 90 days trading horizon BankInvest Optima is expected to generate 129.71 times less return on investment than LED IBond. But when comparing it to its historical volatility, BankInvest Optima 30 is 54.61 times less risky than LED IBond. It trades about 0.07 of its potential returns per unit of risk. LED iBond International is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  16.00  in LED iBond International on September 22, 2024 and sell it today you would earn a total of  13.00  from holding LED iBond International or generate 81.25% return on investment over 90 days.

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

BankInvest Optima 30  vs.  LED iBond International

BankInvest Optima

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BankInvest Optima 30 are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, BankInvest Optima is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

LED iBond International

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in LED iBond International are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental drivers, LED IBond displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BankInvest Optima and LED IBond

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

The idea behind BankInvest Optima 30 and LED iBond International 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.