Correlation Between London Security and Spire Healthcare

Can any of the company-specific risk be diversified away by investing in both London Security and Spire Healthcare 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 Spire Healthcare 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 Spire Healthcare Group, you can compare the effects of market volatilities on London Security and Spire Healthcare 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 Spire Healthcare. Check out your portfolio center. Please also check ongoing floating volatility patterns of London Security and Spire Healthcare.

Diversification Opportunities for London Security and Spire Healthcare

0.54

Correlation Coefficient

London Security  Spire Healthcare

Very weak diversification

The 3 months correlation between London and Spire is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding London Security Plc and Spire Healthcare Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spire Healthcare 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 Spire Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spire Healthcare has no effect on the direction of London Security i.e., London Security and Spire Healthcare go up and down completely randomly.

Pair Corralation between London Security and Spire Healthcare

Assuming the 90 days trading horizon London Security Plc is expected to generate 1.2 times more return on investment than Spire Healthcare. However, London Security is 1.2 times more volatile than Spire Healthcare Group. It trades about 0.04 of its potential returns per unit of risk. Spire Healthcare Group is currently generating about 0.01 per unit of risk. If you would invest  263,649  in London Security Plc on September 12, 2024 and sell it today you would earn a total of  76,351  from holding London Security Plc or generate 28.96% return on investment over 90 days.

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

London Security Plc  vs.  Spire Healthcare Group

London Security Plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days London Security Plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Spire Healthcare

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Spire Healthcare Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with London Security and Spire Healthcare

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

The idea behind London Security Plc and Spire Healthcare Group 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 Transaction History module to view history of all your transactions and understand their impact on performance.