Correlation Between Life Electric and Malibu Boats

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

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

Diversification Opportunities for Life Electric and Malibu Boats

-0.3

Correlation Coefficient

Life Electric  Malibu Boats

Very good diversification

The 3 months correlation between Life and Malibu is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Life Electric Vehicles and Malibu Boats in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Malibu Boats and Life Electric 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 Life Electric Vehicles are associated (or correlated) with Malibu Boats. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Malibu Boats has no effect on the direction of Life Electric i.e., Life Electric and Malibu Boats go up and down completely randomly.

Pair Corralation between Life Electric and Malibu Boats

Given the investment horizon of 90 days Life Electric Vehicles is expected to generate 5.43 times more return on investment than Malibu Boats. However, Life Electric is 5.43 times more volatile than Malibu Boats. It trades about 0.01 of its potential returns per unit of risk. Malibu Boats is currently generating about 0.06 per unit of risk. If you would invest  50.00  in Life Electric Vehicles on September 17, 2024 and sell it today you would lose (18.00) from holding Life Electric Vehicles or give up 36.0% of portfolio value over 90 days.

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

Life Electric Vehicles  vs.  Malibu Boats

Life Electric Vehicles

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Life Electric Vehicles are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain technical and fundamental indicators, Life Electric may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Malibu Boats

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Malibu Boats are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Malibu Boats may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Life Electric and Malibu Boats

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

The idea behind Life Electric Vehicles and Malibu Boats 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.