Correlation Between Big 5 and Lendlease
Can any of the company-specific risk be diversified away by investing in both Big 5 and Lendlease 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 Big 5 and Lendlease into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Big 5 Sporting and Lendlease Group, you can compare the effects of market volatilities on Big 5 and Lendlease 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 Big 5 with a short position of Lendlease. Check out your portfolio center. Please also check ongoing floating volatility patterns of Big 5 and Lendlease.
Diversification Opportunities for Big 5 and Lendlease
Very weak diversification
The 3 months correlation between Big and Lendlease is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Big 5 Sporting and Lendlease Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lendlease Group and Big 5 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 Big 5 Sporting are associated (or correlated) with Lendlease. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lendlease Group has no effect on the direction of Big 5 i.e., Big 5 and Lendlease go up and down completely randomly.
Pair Corralation between Big 5 and Lendlease
Assuming the 90 days horizon Big 5 Sporting is expected to under-perform the Lendlease. In addition to that, Big 5 is 3.56 times more volatile than Lendlease Group. It trades about -0.11 of its total potential returns per unit of risk. Lendlease Group is currently generating about 0.1 per unit of volatility. If you would invest 407.00 in Lendlease Group on August 29, 2024 and sell it today you would earn a total of 12.00 from holding Lendlease Group or generate 2.95% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Big 5 Sporting vs. Lendlease Group
Performance |
| Timeline |
| Big 5 Sporting |
| Lendlease Group |
Big 5 and Lendlease Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Big 5 and Lendlease
The main advantage of trading using opposite Big 5 and Lendlease positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Big 5 position performs unexpectedly, Lendlease 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 Lendlease will offset losses from the drop in Lendlease's long position.The idea behind Big 5 Sporting and Lendlease Group 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.Check out your portfolio center.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.
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