Correlation Between LED IBond and Bavarian Nordic

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

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

Diversification Opportunities for LED IBond and Bavarian Nordic

-0.57

Correlation Coefficient

LED IBond  Bavarian Nordic

Excellent diversification

The 3 months correlation between LED and Bavarian is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding LED iBond International and Bavarian Nordic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bavarian Nordic and LED IBond 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 LED iBond International are associated (or correlated) with Bavarian Nordic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bavarian Nordic has no effect on the direction of LED IBond i.e., LED IBond and Bavarian Nordic go up and down completely randomly.

Pair Corralation between LED IBond and Bavarian Nordic

Assuming the 90 days trading horizon LED iBond International is expected to under-perform the Bavarian Nordic. In addition to that, LED IBond is 6.2 times more volatile than Bavarian Nordic. It trades about -0.01 of its total potential returns per unit of risk. Bavarian Nordic is currently generating about 0.02 per unit of volatility. If you would invest  19,245  in Bavarian Nordic on September 22, 2024 and sell it today you would earn a total of  45.00  from holding Bavarian Nordic or generate 0.23% return on investment over 90 days.

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

LED iBond International  vs.  Bavarian Nordic

LED iBond International

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in LED iBond International are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental drivers, LED IBond displayed solid returns over the last few months and may actually be approaching a breakup point.

Bavarian Nordic

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bavarian Nordic has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with LED IBond and Bavarian Nordic

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

The idea behind LED iBond International and Bavarian Nordic 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.