Correlation Between LRN and Flare

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

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

Diversification Opportunities for LRN and Flare

0.32

Correlation Coefficient

LRN  Flare

Weak diversification

The 3 months correlation between LRN and Flare is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding LRN and Flare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Flare and LRN 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 LRN are associated (or correlated) with Flare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Flare has no effect on the direction of LRN i.e., LRN and Flare go up and down completely randomly.

Pair Corralation between LRN and Flare

Assuming the 90 days trading horizon LRN is expected to under-perform the Flare. In addition to that, LRN is 2.07 times more volatile than Flare. It trades about -0.25 of its total potential returns per unit of risk. Flare is currently generating about -0.19 per unit of volatility. If you would invest  2.38  in Flare on November 27, 2024 and sell it today you would lose (0.65) from holding Flare or give up 27.31% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

LRN  vs.  Flare

LRN

Risk-Adjusted Performance

Very Weak

Over the last 90 days LRN has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, LRN is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Flare

Risk-Adjusted Performance

Very Weak

Over the last 90 days Flare has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Crypto's basic indicators remain rather sound which may send shares a bit higher in March 2025. The latest tumult may also be a sign of longer-term up-swing for Flare shareholders.

Pair Trading with LRN and Flare

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

The idea behind LRN and Flare 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.