Correlation Between First Advantage and LiCycle Holdings

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

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

Diversification Opportunities for First Advantage and LiCycle Holdings

-0.3

Correlation Coefficient

First Advantage  LiCycle Holdings

Very good diversification

The 3 months correlation between First and LiCycle is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding First Advantage Corp and LiCycle Holdings Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LiCycle Holdings Corp and First Advantage 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 First Advantage Corp are associated (or correlated) with LiCycle Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LiCycle Holdings Corp has no effect on the direction of First Advantage i.e., First Advantage and LiCycle Holdings go up and down completely randomly.

Pair Corralation between First Advantage and LiCycle Holdings

Allowing for the 90-day total investment horizon First Advantage Corp is expected to under-perform the LiCycle Holdings. But the stock apears to be less risky and, when comparing its historical volatility, First Advantage Corp is 7.57 times less risky than LiCycle Holdings. The stock trades about -0.28 of its potential returns per unit of risk. The LiCycle Holdings Corp is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  184.00  in LiCycle Holdings Corp on October 6, 2024 and sell it today you would earn a total of  46.00  from holding LiCycle Holdings Corp or generate 25.0% return on investment over 90 days.

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

First Advantage Corp  vs.  LiCycle Holdings Corp

First Advantage Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Advantage Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, First Advantage is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

LiCycle Holdings Corp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in LiCycle Holdings Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent fundamental indicators, LiCycle Holdings showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Advantage and LiCycle Holdings

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

The idea behind First Advantage Corp and LiCycle Holdings Corp 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.