Correlation Between TNB and LBA

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

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

Diversification Opportunities for TNB and LBA

0.86

Correlation Coefficient

TNB  LBA

Very poor diversification

The 3 months correlation between TNB and LBA is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding TNB and LBA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LBA and TNB 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 TNB are associated (or correlated) with LBA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LBA has no effect on the direction of TNB i.e., TNB and LBA go up and down completely randomly.

Pair Corralation between TNB and LBA

Assuming the 90 days trading horizon TNB is expected to generate 0.23 times more return on investment than LBA. However, TNB is 4.44 times less risky than LBA. It trades about -0.03 of its potential returns per unit of risk. LBA is currently generating about -0.01 per unit of risk. If you would invest  0.01  in TNB on December 28, 2024 and sell it today you would lose  0.00  from holding TNB or give up 7.14% of portfolio value over 90 days.

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

TNB  vs.  LBA

TNB

Risk-Adjusted Performance

Very Weak

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

LBA

Risk-Adjusted Performance

Very Weak

Over the last 90 days LBA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Crypto's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for LBA shareholders.

Pair Trading with TNB and LBA

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

The idea behind TNB and LBA 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.