Correlation Between LPL Financial and Transocean

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

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

Diversification Opportunities for LPL Financial and Transocean

0.07

Correlation Coefficient

LPL Financial  Transocean

Significant diversification

The 3 months correlation between LPL and Transocean is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding LPL Financial Holdings and Transocean in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transocean and LPL Financial 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 LPL Financial Holdings are associated (or correlated) with Transocean. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transocean has no effect on the direction of LPL Financial i.e., LPL Financial and Transocean go up and down completely randomly.

Pair Corralation between LPL Financial and Transocean

Assuming the 90 days trading horizon LPL Financial Holdings is expected to generate 0.58 times more return on investment than Transocean. However, LPL Financial Holdings is 1.74 times less risky than Transocean. It trades about 0.31 of its potential returns per unit of risk. Transocean is currently generating about 0.02 per unit of risk. If you would invest  8,139  in LPL Financial Holdings on October 22, 2024 and sell it today you would earn a total of  3,657  from holding LPL Financial Holdings or generate 44.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.31%
Values	Daily Returns

LPL Financial Holdings  vs.  Transocean

LPL Financial Holdings

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in LPL Financial Holdings are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, LPL Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Transocean

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Transocean are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical and fundamental indicators, Transocean is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with LPL Financial and Transocean

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

The idea behind LPL Financial Holdings and Transocean 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.