Correlation Between Iron Road and Liberty Financial

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

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

Diversification Opportunities for Iron Road and Liberty Financial

0.46

Correlation Coefficient

Iron Road  Liberty Financial

Very weak diversification

The 3 months correlation between Iron and Liberty is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Iron Road and Liberty Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liberty Financial and Iron Road 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 Iron Road are associated (or correlated) with Liberty Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liberty Financial has no effect on the direction of Iron Road i.e., Iron Road and Liberty Financial go up and down completely randomly.

Pair Corralation between Iron Road and Liberty Financial

Assuming the 90 days trading horizon Iron Road is expected to generate 1.38 times more return on investment than Liberty Financial. However, Iron Road is 1.38 times more volatile than Liberty Financial Group. It trades about -0.03 of its potential returns per unit of risk. Liberty Financial Group is currently generating about -0.07 per unit of risk. If you would invest  6.00  in Iron Road on September 28, 2024 and sell it today you would lose (0.10) from holding Iron Road or give up 1.67% of portfolio value over 90 days.

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

Iron Road  vs.  Liberty Financial Group

Iron Road

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Iron Road has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's fundamental indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Liberty Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Liberty Financial Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Iron Road and Liberty Financial

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

The idea behind Iron Road and Liberty Financial Group 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.