Correlation Between State Bank and Litigation Capital

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

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

Diversification Opportunities for State Bank and Litigation Capital

0.26

Correlation Coefficient

State Bank  Litigation Capital

Modest diversification

The 3 months correlation between State and Litigation is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding State Bank of and Litigation Capital Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Litigation Capital and State Bank 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 State Bank of are associated (or correlated) with Litigation Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Litigation Capital has no effect on the direction of State Bank i.e., State Bank and Litigation Capital go up and down completely randomly.

Pair Corralation between State Bank and Litigation Capital

Assuming the 90 days trading horizon State Bank is expected to generate 1.15 times less return on investment than Litigation Capital. But when comparing it to its historical volatility, State Bank of is 1.66 times less risky than Litigation Capital. It trades about 0.01 of its potential returns per unit of risk. Litigation Capital Management is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  9,856  in Litigation Capital Management on September 29, 2024 and sell it today you would lose (56.00) from holding Litigation Capital Management or give up 0.57% of portfolio value over 90 days.

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

State Bank of  vs.  Litigation Capital Management

State Bank

Risk-Adjusted Performance

0 of 100

Very Weak

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

Litigation Capital

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with State Bank and Litigation Capital

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

The idea behind State Bank of and Litigation Capital Management 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.