Correlation Between Leading Edge and Falcon Energy

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

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

Diversification Opportunities for Leading Edge and Falcon Energy

-0.1

Correlation Coefficient

Leading Edge  Falcon Energy

Good diversification

The 3 months correlation between Leading and Falcon is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Leading Edge Materials and Falcon Energy Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Falcon Energy Materials and Leading Edge 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 Leading Edge Materials are associated (or correlated) with Falcon Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Falcon Energy Materials has no effect on the direction of Leading Edge i.e., Leading Edge and Falcon Energy go up and down completely randomly.

Pair Corralation between Leading Edge and Falcon Energy

Assuming the 90 days horizon Leading Edge Materials is expected to generate 1.44 times more return on investment than Falcon Energy. However, Leading Edge is 1.44 times more volatile than Falcon Energy Materials. It trades about 0.01 of its potential returns per unit of risk. Falcon Energy Materials is currently generating about 0.0 per unit of risk. If you would invest  14.00  in Leading Edge Materials on October 3, 2024 and sell it today you would lose (5.00) from holding Leading Edge Materials or give up 35.71% of portfolio value over 90 days.

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

Leading Edge Materials  vs.  Falcon Energy Materials

Leading Edge Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Leading Edge Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Falcon Energy Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Falcon Energy Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable fundamental indicators, Falcon Energy is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Leading Edge and Falcon Energy

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

The idea behind Leading Edge Materials and Falcon Energy Materials 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.