Correlation Between SW Seed and Local Bounti

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

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

Diversification Opportunities for SW Seed and Local Bounti

0.25

Correlation Coefficient

SW Seed  Local Bounti

Modest diversification

The 3 months correlation between SANW and Local is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding SW Seed Company and Local Bounti Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Local Bounti Corp and SW Seed 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 SW Seed Company are associated (or correlated) with Local Bounti. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Local Bounti Corp has no effect on the direction of SW Seed i.e., SW Seed and Local Bounti go up and down completely randomly.

Pair Corralation between SW Seed and Local Bounti

Given the investment horizon of 90 days SW Seed Company is expected to under-perform the Local Bounti. In addition to that, SW Seed is 1.74 times more volatile than Local Bounti Corp. It trades about -0.02 of its total potential returns per unit of risk. Local Bounti Corp is currently generating about 0.03 per unit of volatility. If you would invest  204.00  in Local Bounti Corp on December 28, 2024 and sell it today you would earn a total of  4.00  from holding Local Bounti Corp or generate 1.96% return on investment over 90 days.

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

SW Seed Company  vs.  Local Bounti Corp

SW Seed Company

Risk-Adjusted Performance

Very Weak

Over the last 90 days SW Seed Company has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Local Bounti Corp

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Local Bounti Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental indicators, Local Bounti is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with SW Seed and Local Bounti

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

The idea behind SW Seed Company and Local Bounti 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.