Correlation Between Lyxor 1 and Gap

Can any of the company-specific risk be diversified away by investing in both Lyxor 1 and Gap 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 Lyxor 1 and Gap into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Lyxor 1 and The Gap, you can compare the effects of market volatilities on Lyxor 1 and Gap 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 Lyxor 1 with a short position of Gap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lyxor 1 and Gap.

Diversification Opportunities for Lyxor 1 and Gap

0.69

Correlation Coefficient

Lyxor 1  Gap

Poor diversification

The 3 months correlation between Lyxor and Gap is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Lyxor 1 and The Gap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gap and Lyxor 1 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 Lyxor 1 are associated (or correlated) with Gap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gap has no effect on the direction of Lyxor 1 i.e., Lyxor 1 and Gap go up and down completely randomly.

Pair Corralation between Lyxor 1 and Gap

Assuming the 90 days trading horizon Lyxor 1 is expected to generate 0.28 times more return on investment than Gap. However, Lyxor 1 is 3.52 times less risky than Gap. It trades about -0.33 of its potential returns per unit of risk. The Gap is currently generating about -0.21 per unit of risk. If you would invest  2,571  in Lyxor 1 on October 9, 2024 and sell it today you would lose (87.00) from holding Lyxor 1 or give up 3.38% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	94.12%
Values	Daily Returns

Lyxor 1   vs.  The Gap

Lyxor 1

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lyxor 1 are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Lyxor 1 is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Gap

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Gap are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Gap reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lyxor 1 and Gap

The main advantage of trading using opposite Lyxor 1 and Gap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lyxor 1 position performs unexpectedly, Gap 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 Gap will offset losses from the drop in Gap's long position.

The idea behind Lyxor 1 and The Gap 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.

Check out your portfolio center.

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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.