Correlation Between Strategic Investments and LED IBond

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

By analyzing existing cross correlation between Strategic Investments AS and LED iBond International, you can compare the effects of market volatilities on Strategic Investments and LED IBond 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 Strategic Investments with a short position of LED IBond. Check out your portfolio center. Please also check ongoing floating volatility patterns of Strategic Investments and LED IBond.

Diversification Opportunities for Strategic Investments and LED IBond

-0.6

Correlation Coefficient

Strategic Investments  LED IBond

Excellent diversification

The 3 months correlation between Strategic and LED is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Strategic Investments AS and LED iBond International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LED iBond International and Strategic Investments 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 Strategic Investments AS are associated (or correlated) with LED IBond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LED iBond International has no effect on the direction of Strategic Investments i.e., Strategic Investments and LED IBond go up and down completely randomly.

Pair Corralation between Strategic Investments and LED IBond

Assuming the 90 days trading horizon Strategic Investments AS is expected to generate 0.22 times more return on investment than LED IBond. However, Strategic Investments AS is 4.52 times less risky than LED IBond. It trades about -0.03 of its potential returns per unit of risk. LED iBond International is currently generating about -0.01 per unit of risk. If you would invest  108.00  in Strategic Investments AS on September 22, 2024 and sell it today you would lose (3.00) from holding Strategic Investments AS or give up 2.78% of portfolio value over 90 days.

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

Strategic Investments AS  vs.  LED iBond International

Strategic Investments

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Strategic Investments AS has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Strategic Investments is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

LED iBond International

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in LED iBond International are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental drivers, LED IBond displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Strategic Investments and LED IBond

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

The idea behind Strategic Investments AS and LED iBond International 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.