Correlation Between Big 5 and LTC Properties

Can any of the company-specific risk be diversified away by investing in both Big 5 and LTC Properties 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 LTC Properties 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 LTC Properties, you can compare the effects of market volatilities on Big 5 and LTC Properties 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 LTC Properties. Check out your portfolio center. Please also check ongoing floating volatility patterns of Big 5 and LTC Properties.

Diversification Opportunities for Big 5 and LTC Properties

-0.72

Correlation Coefficient

Big 5  LTC Properties

Pay attention - limited upside

The 3 months correlation between Big and LTC is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Big 5 Sporting and LTC Properties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LTC Properties 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 LTC Properties. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LTC Properties has no effect on the direction of Big 5 i.e., Big 5 and LTC Properties go up and down completely randomly.

Pair Corralation between Big 5 and LTC Properties

Assuming the 90 days horizon Big 5 is expected to generate 2.51 times less return on investment than LTC Properties. In addition to that, Big 5 is 3.26 times more volatile than LTC Properties. It trades about 0.02 of its total potential returns per unit of risk. LTC Properties is currently generating about 0.15 per unit of volatility. If you would invest  3,196  in LTC Properties on September 4, 2024 and sell it today you would earn a total of  414.00  from holding LTC Properties or generate 12.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.46%
Values	Daily Returns

Big 5 Sporting  vs.  LTC Properties

Big 5 Sporting

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Big 5 Sporting are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Big 5 is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

LTC Properties

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in LTC Properties are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, LTC Properties may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Big 5 and LTC Properties

The main advantage of trading using opposite Big 5 and LTC Properties positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Big 5 position performs unexpectedly, LTC Properties 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 LTC Properties will offset losses from the drop in LTC Properties' long position.

The idea behind Big 5 Sporting and LTC Properties 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.