Correlation Between LED IBond and Sparinvest INDEX

Can any of the company-specific risk be diversified away by investing in both LED IBond and Sparinvest INDEX 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 Sparinvest INDEX 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 Sparinvest INDEX Globale, you can compare the effects of market volatilities on LED IBond and Sparinvest INDEX 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 Sparinvest INDEX. Check out your portfolio center. Please also check ongoing floating volatility patterns of LED IBond and Sparinvest INDEX.

Diversification Opportunities for LED IBond and Sparinvest INDEX

-0.41

Correlation Coefficient

LED IBond  Sparinvest INDEX

Very good diversification

The 3 months correlation between LED and Sparinvest is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding LED iBond International and Sparinvest INDEX Globale in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sparinvest INDEX Globale 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 Sparinvest INDEX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sparinvest INDEX Globale has no effect on the direction of LED IBond i.e., LED IBond and Sparinvest INDEX go up and down completely randomly.

Pair Corralation between LED IBond and Sparinvest INDEX

Assuming the 90 days trading horizon LED iBond International is expected to generate 13.29 times more return on investment than Sparinvest INDEX. However, LED IBond is 13.29 times more volatile than Sparinvest INDEX Globale. It trades about 0.03 of its potential returns per unit of risk. Sparinvest INDEX Globale is currently generating about 0.06 per unit of risk. If you would invest  31.00  in LED iBond International on December 29, 2024 and sell it today you would lose (2.00) from holding LED iBond International or give up 6.45% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

LED iBond International  vs.  Sparinvest INDEX Globale

LED iBond International

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in LED iBond International are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental drivers, LED IBond displayed solid returns over the last few months and may actually be approaching a breakup point.

Sparinvest INDEX Globale

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sparinvest INDEX Globale are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of very healthy basic indicators, Sparinvest INDEX is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with LED IBond and Sparinvest INDEX

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

The idea behind LED iBond International and Sparinvest INDEX Globale 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.