Correlation Between CHP and LBA

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

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

Diversification Opportunities for CHP and LBA

-0.02

Correlation Coefficient

CHP  LBA

Good diversification

The 3 months correlation between CHP and LBA is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding CHP and LBA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LBA and CHP 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 CHP are associated (or correlated) with LBA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LBA has no effect on the direction of CHP i.e., CHP and LBA go up and down completely randomly.

Pair Corralation between CHP and LBA

Assuming the 90 days trading horizon CHP is expected to generate 1.68 times less return on investment than LBA. In addition to that, CHP is 2.4 times more volatile than LBA. It trades about 0.01 of its total potential returns per unit of risk. LBA is currently generating about 0.03 per unit of volatility. If you would invest  0.03  in LBA on September 1, 2024 and sell it today you would lose (0.01) from holding LBA or give up 19.53% of portfolio value over 90 days.

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

CHP  vs.  LBA

CHP

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CHP has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Crypto's basic indicators remain rather sound which may send shares a bit higher in December 2024. The latest tumult may also be a sign of longer-term up-swing for CHP shareholders.

LBA

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in LBA are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, LBA exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CHP and LBA

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

The idea behind CHP and LBA 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.