Correlation Between LBA and CHP

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

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

Diversification Opportunities for LBA and CHP

-0.07

Correlation Coefficient

LBA  CHP

Good diversification

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

Pair Corralation between LBA and CHP

Assuming the 90 days trading horizon LBA is expected to generate 1.43 times more return on investment than CHP. However, LBA is 1.43 times more volatile than CHP. It trades about -0.11 of its potential returns per unit of risk. CHP is currently generating about -0.22 per unit of risk. If you would invest  0.02  in LBA on November 19, 2024 and sell it today you would lose  0.00  from holding LBA or give up 15.35% of portfolio value over 90 days.

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

LBA  vs.  CHP

LBA

Risk-Adjusted Performance

Very Weak

Over the last 90 days LBA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, LBA is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

CHP

Risk-Adjusted Performance

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 latest unsteady performance, the Crypto's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for CHP shareholders.

Pair Trading with LBA and CHP

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

The idea behind LBA and CHP 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.