Correlation Between Level and Infosys

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

By analyzing existing cross correlation between Level 3 Financing and Infosys Ltd ADR, you can compare the effects of market volatilities on Level and Infosys 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 Level with a short position of Infosys. Check out your portfolio center. Please also check ongoing floating volatility patterns of Level and Infosys.

Diversification Opportunities for Level and Infosys

0.25

Correlation Coefficient

Level  Infosys

Modest diversification

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

Pair Corralation between Level and Infosys

Assuming the 90 days trading horizon Level 3 Financing is expected to generate 8.5 times more return on investment than Infosys. However, Level is 8.5 times more volatile than Infosys Ltd ADR. It trades about 0.03 of its potential returns per unit of risk. Infosys Ltd ADR is currently generating about -0.03 per unit of risk. If you would invest  9,050  in Level 3 Financing on October 23, 2024 and sell it today you would lose (554.00) from holding Level 3 Financing or give up 6.12% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	22.95%
Values	Daily Returns

Level 3 Financing  vs.  Infosys Ltd ADR

Level 3 Financing

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Level 3 Financing are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Level sustained solid returns over the last few months and may actually be approaching a breakup point.

Infosys Ltd ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Infosys Ltd ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Infosys is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Level and Infosys

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

The idea behind Level 3 Financing and Infosys Ltd ADR 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.