Correlation Between LBA and TNB
Can any of the company-specific risk be diversified away by investing in both LBA and TNB 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 TNB into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between LBA and TNB, you can compare the effects of market volatilities on LBA and TNB 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 TNB. Check out your portfolio center. Please also check ongoing floating volatility patterns of LBA and TNB.
Diversification Opportunities for LBA and TNB
Significant diversification
The 3 months correlation between LBA and TNB is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding LBA and TNB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TNB 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 TNB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TNB has no effect on the direction of LBA i.e., LBA and TNB go up and down completely randomly.
Pair Corralation between LBA and TNB
Assuming the 90 days trading horizon LBA is expected to generate 2.49 times less return on investment than TNB. In addition to that, LBA is 3.75 times more volatile than TNB. It trades about 0.04 of its total potential returns per unit of risk. TNB is currently generating about 0.38 per unit of volatility. If you would invest 0.01 in TNB on September 4, 2024 and sell it today you would earn a total of 0.00 from holding TNB or generate 38.71% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
LBA vs. TNB
Performance |
| Timeline |
| LBA |
| TNB |
LBA and TNB Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with LBA and TNB
The main advantage of trading using opposite LBA and TNB positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LBA position performs unexpectedly, TNB 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 TNB will offset losses from the drop in TNB's long position.The idea behind LBA and TNB 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
Other Complementary Tools
| Portfolio Holdings Check your current holdings and cash postion to detemine if your portfolio needs rebalancing | |
| Commodity Channel Use Commodity Channel Index to analyze current equity momentum | |
| Stock Tickers Use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites | |
| Sync Your Broker Sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors. | |
| Stock Screener Find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook. |