Correlation Between Medco Holdings and LFM Properties

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

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

Diversification Opportunities for Medco Holdings and LFM Properties

-0.01

Correlation Coefficient

Medco Holdings  LFM Properties

Good diversification

The 3 months correlation between Medco and LFM is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Medco Holdings and LFM Properties Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LFM Properties Corp and Medco Holdings 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 Medco Holdings are associated (or correlated) with LFM Properties. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LFM Properties Corp has no effect on the direction of Medco Holdings i.e., Medco Holdings and LFM Properties go up and down completely randomly.

Pair Corralation between Medco Holdings and LFM Properties

Assuming the 90 days trading horizon Medco Holdings is expected to generate 16.63 times less return on investment than LFM Properties. But when comparing it to its historical volatility, Medco Holdings is 1.01 times less risky than LFM Properties. It trades about 0.0 of its potential returns per unit of risk. LFM Properties Corp is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  4.40  in LFM Properties Corp on December 29, 2024 and sell it today you would earn a total of  0.20  from holding LFM Properties Corp or generate 4.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	73.08%
Values	Daily Returns

Medco Holdings  vs.  LFM Properties Corp

Medco Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Medco Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Medco Holdings is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

LFM Properties Corp

Risk-Adjusted Performance

Modest

Over the last 90 days LFM Properties Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather uncertain technical and fundamental indicators, LFM Properties exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Medco Holdings and LFM Properties

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

The idea behind Medco Holdings and LFM Properties Corp 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.