Correlation Between London Security and Cembra Money

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

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

Diversification Opportunities for London Security and Cembra Money

0.83

Correlation Coefficient

London Security  Cembra Money

Very poor diversification

The 3 months correlation between London and Cembra is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding London Security Plc and Cembra Money Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cembra Money Bank and London Security 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 London Security Plc are associated (or correlated) with Cembra Money. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cembra Money Bank has no effect on the direction of London Security i.e., London Security and Cembra Money go up and down completely randomly.

Pair Corralation between London Security and Cembra Money

Assuming the 90 days trading horizon London Security is expected to generate 1.7 times less return on investment than Cembra Money. But when comparing it to its historical volatility, London Security Plc is 1.38 times less risky than Cembra Money. It trades about 0.17 of its potential returns per unit of risk. Cembra Money Bank is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  8,129  in Cembra Money Bank on December 1, 2024 and sell it today you would earn a total of  1,536  from holding Cembra Money Bank or generate 18.9% return on investment over 90 days.

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

London Security Plc  vs.  Cembra Money Bank

London Security Plc

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in London Security Plc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, London Security may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Cembra Money Bank

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cembra Money Bank are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Cembra Money unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with London Security and Cembra Money

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

The idea behind London Security Plc and Cembra Money Bank 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.