Correlation Between Stellar and LUNC

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

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

Diversification Opportunities for Stellar and LUNC

0.56

Correlation Coefficient

Stellar  LUNC

Very weak diversification

The 3 months correlation between Stellar and LUNC is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Stellar and LUNC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LUNC and Stellar 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 Stellar are associated (or correlated) with LUNC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LUNC has no effect on the direction of Stellar i.e., Stellar and LUNC go up and down completely randomly.

Pair Corralation between Stellar and LUNC

Assuming the 90 days trading horizon Stellar is expected to under-perform the LUNC. But the crypto coin apears to be less risky and, when comparing its historical volatility, Stellar is 1.04 times less risky than LUNC. The crypto coin trades about -0.12 of its potential returns per unit of risk. The LUNC is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest  0.01  in LUNC on November 28, 2024 and sell it today you would lose (0.01) from holding LUNC or give up 45.6% of portfolio value over 90 days.

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

Stellar  vs.  LUNC

Stellar

Risk-Adjusted Performance

Very Weak

Over the last 90 days Stellar has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Crypto's primary indicators remain rather sound which may send shares a bit higher in March 2025. The latest tumult may also be a sign of longer-term up-swing for Stellar shareholders.

LUNC

Risk-Adjusted Performance

Very Weak

Over the last 90 days LUNC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Crypto's fundamental indicators remain rather sound which may send shares a bit higher in March 2025. The latest tumult may also be a sign of longer-term up-swing for LUNC shareholders.

Pair Trading with Stellar and LUNC

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

The idea behind Stellar and LUNC 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.