Correlation Between BIO Key and Liberty Defense

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

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

Diversification Opportunities for BIO Key and Liberty Defense

-0.23

Correlation Coefficient

BIO Key  Liberty Defense

Very good diversification

The 3 months correlation between BIO and Liberty is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding BIO Key International and Liberty Defense Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liberty Defense Holdings and BIO Key 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 BIO Key International are associated (or correlated) with Liberty Defense. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liberty Defense Holdings has no effect on the direction of BIO Key i.e., BIO Key and Liberty Defense go up and down completely randomly.

Pair Corralation between BIO Key and Liberty Defense

Given the investment horizon of 90 days BIO Key is expected to generate 4.35 times less return on investment than Liberty Defense. But when comparing it to its historical volatility, BIO Key International is 1.96 times less risky than Liberty Defense. It trades about 0.1 of its potential returns per unit of risk. Liberty Defense Holdings is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  38.00  in Liberty Defense Holdings on September 26, 2024 and sell it today you would earn a total of  20.00  from holding Liberty Defense Holdings or generate 52.63% return on investment over 90 days.

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

BIO Key International  vs.  Liberty Defense Holdings

BIO Key International

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BIO Key International are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly conflicting basic indicators, BIO Key demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Liberty Defense Holdings

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Liberty Defense Holdings are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal technical and fundamental indicators, Liberty Defense may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with BIO Key and Liberty Defense

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

The idea behind BIO Key International and Liberty Defense 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.