Correlation Between Lobe Sciences and Red Light

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

By analyzing existing cross correlation between Lobe Sciences and Red Light Holland, you can compare the effects of market volatilities on Lobe Sciences and Red Light 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 Lobe Sciences with a short position of Red Light. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lobe Sciences and Red Light.

Diversification Opportunities for Lobe Sciences and Red Light

-0.24

Correlation Coefficient

Lobe Sciences  Red Light

Very good diversification

The 3 months correlation between Lobe and Red is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Lobe Sciences and Red Light Holland in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Red Light Holland and Lobe Sciences 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 Lobe Sciences are associated (or correlated) with Red Light. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Red Light Holland has no effect on the direction of Lobe Sciences i.e., Lobe Sciences and Red Light go up and down completely randomly.

Pair Corralation between Lobe Sciences and Red Light

Assuming the 90 days horizon Lobe Sciences is expected to generate 43.27 times more return on investment than Red Light. However, Lobe Sciences is 43.27 times more volatile than Red Light Holland. It trades about 0.34 of its potential returns per unit of risk. Red Light Holland is currently generating about 0.05 per unit of risk. If you would invest  0.12  in Lobe Sciences on September 13, 2024 and sell it today you would earn a total of  1.28  from holding Lobe Sciences or generate 1066.67% return on investment over 90 days.

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

Lobe Sciences  vs.  Red Light Holland

Lobe Sciences

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Lobe Sciences are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Lobe Sciences reported solid returns over the last few months and may actually be approaching a breakup point.

Red Light Holland

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Red Light Holland are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating technical and fundamental indicators, Red Light reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lobe Sciences and Red Light

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

The idea behind Lobe Sciences and Red Light Holland 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.