Correlation Between Predictive Discovery and LGI

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

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

Diversification Opportunities for Predictive Discovery and LGI

-0.48

Correlation Coefficient

Predictive Discovery  LGI

Very good diversification

The 3 months correlation between Predictive and LGI is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Predictive Discovery and LGI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LGI and Predictive Discovery 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 Predictive Discovery are associated (or correlated) with LGI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LGI has no effect on the direction of Predictive Discovery i.e., Predictive Discovery and LGI go up and down completely randomly.

Pair Corralation between Predictive Discovery and LGI

Assuming the 90 days trading horizon Predictive Discovery is expected to generate 1.45 times more return on investment than LGI. However, Predictive Discovery is 1.45 times more volatile than LGI. It trades about -0.03 of its potential returns per unit of risk. LGI is currently generating about -0.07 per unit of risk. If you would invest  25.00  in Predictive Discovery on September 25, 2024 and sell it today you would lose (1.00) from holding Predictive Discovery or give up 4.0% of portfolio value over 90 days.

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

Predictive Discovery  vs.  LGI

Predictive Discovery

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Predictive Discovery has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable forward indicators, Predictive Discovery is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

LGI

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in LGI are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain forward indicators, LGI may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Predictive Discovery and LGI

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

The idea behind Predictive Discovery and LGI 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.