Correlation Between LBA and NXS
Can any of the company-specific risk be diversified away by investing in both LBA and NXS 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 NXS into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between LBA and NXS, you can compare the effects of market volatilities on LBA and NXS 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 NXS. Check out your portfolio center. Please also check ongoing floating volatility patterns of LBA and NXS.
Diversification Opportunities for LBA and NXS
Modest diversification
The 3 months correlation between LBA and NXS is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding LBA and NXS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NXS 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 NXS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NXS has no effect on the direction of LBA i.e., LBA and NXS go up and down completely randomly.
Pair Corralation between LBA and NXS
Assuming the 90 days trading horizon LBA is expected to generate 5.25 times more return on investment than NXS. However, LBA is 5.25 times more volatile than NXS. It trades about 0.02 of its potential returns per unit of risk. NXS is currently generating about 0.01 per unit of risk. If you would invest 0.02 in LBA on November 8, 2024 and sell it today you would lose 0.00 from holding LBA or give up 13.86% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
LBA vs. NXS
Performance |
| Timeline |
| LBA |
| NXS |
LBA and NXS Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with LBA and NXS
The main advantage of trading using opposite LBA and NXS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LBA position performs unexpectedly, NXS 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 NXS will offset losses from the drop in NXS's long position.The idea behind LBA and NXS 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
Other Complementary Tools
| Portfolio File Import Quickly import all of your third-party portfolios from your local drive in csv format | |
| Portfolio Analyzer Portfolio analysis module that provides access to portfolio diagnostics and optimization engine | |
| Piotroski F Score Get Piotroski F Score based on the binary analysis strategy of nine different fundamentals | |
| Bollinger Bands Use Bollinger Bands indicator to analyze target price for a given investing horizon | |
| Stock Tickers Use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites |