Correlation Between LBA and GRIN
Can any of the company-specific risk be diversified away by investing in both LBA and GRIN 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 LBA and GRIN into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between LBA and GRIN, you can compare the effects of market volatilities on LBA and GRIN 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 LBA with a short position of GRIN. Check out your portfolio center. Please also check ongoing floating volatility patterns of LBA and GRIN.
Diversification Opportunities for LBA and GRIN
Average diversification
The 3 months correlation between LBA and GRIN is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding LBA and GRIN in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GRIN and LBA 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 LBA are associated (or correlated) with GRIN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GRIN has no effect on the direction of LBA i.e., LBA and GRIN go up and down completely randomly.
Pair Corralation between LBA and GRIN
Assuming the 90 days trading horizon LBA is expected to generate 4.28 times less return on investment than GRIN. In addition to that, LBA is 2.47 times more volatile than GRIN. It trades about 0.04 of its total potential returns per unit of risk. GRIN is currently generating about 0.43 per unit of volatility. If you would invest 2.45 in GRIN on September 4, 2024 and sell it today you would earn a total of 1.79 from holding GRIN or generate 73.06% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
LBA vs. GRIN
Performance |
| Timeline |
| LBA |
| GRIN |
LBA and GRIN Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with LBA and GRIN
The main advantage of trading using opposite LBA and GRIN positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LBA position performs unexpectedly, GRIN 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 GRIN will offset losses from the drop in GRIN's long position.The idea behind LBA and GRIN 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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