Correlation Between Lindsell Train and Gear4music (Holdings)

Can any of the company-specific risk be diversified away by investing in both Lindsell Train and Gear4music (Holdings) 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 Lindsell Train and Gear4music (Holdings) into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Lindsell Train Investment and Gear4music Plc, you can compare the effects of market volatilities on Lindsell Train and Gear4music (Holdings) 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 Lindsell Train with a short position of Gear4music (Holdings). Check out your portfolio center. Please also check ongoing floating volatility patterns of Lindsell Train and Gear4music (Holdings).

Diversification Opportunities for Lindsell Train and Gear4music (Holdings)

-0.45

Correlation Coefficient

Lindsell Train  Gear4music (Holdings)

Very good diversification

The 3 months correlation between Lindsell and Gear4music is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Lindsell Train Investment and Gear4music Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gear4music (Holdings) and Lindsell Train 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 Lindsell Train Investment are associated (or correlated) with Gear4music (Holdings). Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gear4music (Holdings) has no effect on the direction of Lindsell Train i.e., Lindsell Train and Gear4music (Holdings) go up and down completely randomly.

Pair Corralation between Lindsell Train and Gear4music (Holdings)

Assuming the 90 days trading horizon Lindsell Train Investment is expected to generate 0.93 times more return on investment than Gear4music (Holdings). However, Lindsell Train Investment is 1.08 times less risky than Gear4music (Holdings). It trades about 0.06 of its potential returns per unit of risk. Gear4music Plc is currently generating about -0.25 per unit of risk. If you would invest  79,300  in Lindsell Train Investment on December 25, 2024 and sell it today you would earn a total of  3,300  from holding Lindsell Train Investment or generate 4.16% return on investment over 90 days.

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

Lindsell Train Investment  vs.  Gear4music Plc

Lindsell Train Investment

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Lindsell Train Investment are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Lindsell Train is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Gear4music (Holdings)

Risk-Adjusted Performance

Very Weak

Over the last 90 days Gear4music Plc 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 Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Lindsell Train and Gear4music (Holdings)

The main advantage of trading using opposite Lindsell Train and Gear4music (Holdings) positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lindsell Train position performs unexpectedly, Gear4music (Holdings) 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 Gear4music (Holdings) will offset losses from the drop in Gear4music (Holdings)'s long position.

The idea behind Lindsell Train Investment and Gear4music Plc 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.