Correlation Between Lument Finance and NexPoint Real

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

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

Diversification Opportunities for Lument Finance and NexPoint Real

0.07

Correlation Coefficient

Lument Finance  NexPoint Real

Significant diversification

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

Pair Corralation between Lument Finance and NexPoint Real

Assuming the 90 days trading horizon Lument Finance Trust is expected to generate 2.5 times more return on investment than NexPoint Real. However, Lument Finance is 2.5 times more volatile than NexPoint Real Estate. It trades about 0.03 of its potential returns per unit of risk. NexPoint Real Estate is currently generating about 0.05 per unit of risk. If you would invest  2,044  in Lument Finance Trust on September 26, 2024 and sell it today you would earn a total of  286.00  from holding Lument Finance Trust or generate 13.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	97.97%
Values	Daily Returns

Lument Finance Trust  vs.  NexPoint Real Estate

Lument Finance Trust

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lument Finance Trust are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Lument Finance is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

NexPoint Real Estate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NexPoint Real Estate has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, NexPoint Real is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Lument Finance and NexPoint Real

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

The idea behind Lument Finance Trust and NexPoint Real Estate 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.