Correlation Between Linc and Indo Borax

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

By analyzing existing cross correlation between Linc Limited and Indo Borax Chemicals, you can compare the effects of market volatilities on Linc and Indo Borax 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 Linc with a short position of Indo Borax. Check out your portfolio center. Please also check ongoing floating volatility patterns of Linc and Indo Borax.

Diversification Opportunities for Linc and Indo Borax

-0.07

Correlation Coefficient

Linc  Indo Borax

Good diversification

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

Pair Corralation between Linc and Indo Borax

Assuming the 90 days trading horizon Linc Limited is expected to generate 20.91 times more return on investment than Indo Borax. However, Linc is 20.91 times more volatile than Indo Borax Chemicals. It trades about 0.07 of its potential returns per unit of risk. Indo Borax Chemicals is currently generating about 0.02 per unit of risk. If you would invest  16,515  in Linc Limited on October 5, 2024 and sell it today you would lose (221.00) from holding Linc Limited or give up 1.34% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.24%
Values	Daily Returns

Linc Limited  vs.  Indo Borax Chemicals

Linc Limited

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Linc Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Linc unveiled solid returns over the last few months and may actually be approaching a breakup point.

Indo Borax Chemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Indo Borax Chemicals has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Indo Borax is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Linc and Indo Borax

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

The idea behind Linc Limited and Indo Borax Chemicals 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.