Correlation Between Terra and LSK

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

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

Diversification Opportunities for Terra and LSK

0.94

Correlation Coefficient

Terra  LSK

Almost no diversification

The 3 months correlation between Terra and LSK is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Terra and LSK in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LSK and Terra 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 Terra are associated (or correlated) with LSK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LSK has no effect on the direction of Terra i.e., Terra and LSK go up and down completely randomly.

Pair Corralation between Terra and LSK

Assuming the 90 days trading horizon Terra is expected to generate 1.28 times more return on investment than LSK. However, Terra is 1.28 times more volatile than LSK. It trades about 0.01 of its potential returns per unit of risk. LSK is currently generating about -0.13 per unit of risk. If you would invest  47.00  in Terra on September 24, 2024 and sell it today you would lose (3.00) from holding Terra or give up 6.38% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.45%
Values	Daily Returns

Terra  vs.  LSK

Terra

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Terra are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Terra exhibited solid returns over the last few months and may actually be approaching a breakup point.

LSK

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in LSK are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady forward-looking signals, LSK may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Terra and LSK

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

The idea behind Terra and LSK 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.