Correlation Between Two Harbors and LQR House

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

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

Diversification Opportunities for Two Harbors and LQR House

-0.4

Correlation Coefficient

Two Harbors  LQR House

Very good diversification

The 3 months correlation between Two and LQR is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Two Harbors Investments and LQR House Common in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LQR House Common and Two Harbors 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 Two Harbors Investments are associated (or correlated) with LQR House. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LQR House Common has no effect on the direction of Two Harbors i.e., Two Harbors and LQR House go up and down completely randomly.

Pair Corralation between Two Harbors and LQR House

Assuming the 90 days trading horizon Two Harbors Investments is expected to generate 0.09 times more return on investment than LQR House. However, Two Harbors Investments is 10.65 times less risky than LQR House. It trades about 0.04 of its potential returns per unit of risk. LQR House Common is currently generating about -0.08 per unit of risk. If you would invest  2,127  in Two Harbors Investments on October 26, 2024 and sell it today you would earn a total of  356.00  from holding Two Harbors Investments or generate 16.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	71.34%
Values	Daily Returns

Two Harbors Investments  vs.  LQR House Common

Two Harbors Investments

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Two Harbors Investments are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Two Harbors is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

LQR House Common

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days LQR House Common has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively weak basic indicators, LQR House reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Two Harbors and LQR House

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

The idea behind Two Harbors Investments and LQR House Common 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.