Correlation Between LifeSpeak and GSE Systems

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

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

Diversification Opportunities for LifeSpeak and GSE Systems

-0.39

Correlation Coefficient

LifeSpeak  GSE Systems

Very good diversification

The 3 months correlation between LifeSpeak and GSE is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding LifeSpeak and GSE Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GSE Systems and LifeSpeak 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 LifeSpeak are associated (or correlated) with GSE Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GSE Systems has no effect on the direction of LifeSpeak i.e., LifeSpeak and GSE Systems go up and down completely randomly.

Pair Corralation between LifeSpeak and GSE Systems

Assuming the 90 days horizon LifeSpeak is expected to under-perform the GSE Systems. In addition to that, LifeSpeak is 3.32 times more volatile than GSE Systems. It trades about -0.03 of its total potential returns per unit of risk. GSE Systems is currently generating about 0.24 per unit of volatility. If you would invest  401.00  in GSE Systems on September 12, 2024 and sell it today you would earn a total of  58.00  from holding GSE Systems or generate 14.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	57.81%
Values	Daily Returns

LifeSpeak  vs.  GSE Systems

LifeSpeak

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LifeSpeak has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's forward-looking signals remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

GSE Systems

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days GSE Systems has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively fragile basic indicators, GSE Systems reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with LifeSpeak and GSE Systems

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

The idea behind LifeSpeak and GSE Systems 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.