Correlation Between FNB Government and Libstar Holdings

Can any of the company-specific risk be diversified away by investing in both FNB Government and Libstar Holdings 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 FNB Government and Libstar Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between FNB Government Inflation and Libstar Holdings, you can compare the effects of market volatilities on FNB Government and Libstar Holdings 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 FNB Government with a short position of Libstar Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of FNB Government and Libstar Holdings.

Diversification Opportunities for FNB Government and Libstar Holdings

-0.76

Correlation Coefficient

FNB Government  Libstar Holdings

Pay attention - limited upside

The 3 months correlation between FNB and Libstar is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding FNB Government Inflation and Libstar Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Libstar Holdings and FNB Government 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 FNB Government Inflation are associated (or correlated) with Libstar Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Libstar Holdings has no effect on the direction of FNB Government i.e., FNB Government and Libstar Holdings go up and down completely randomly.

Pair Corralation between FNB Government and Libstar Holdings

Assuming the 90 days trading horizon FNB Government is expected to generate 2.81 times less return on investment than Libstar Holdings. But when comparing it to its historical volatility, FNB Government Inflation is 17.21 times less risky than Libstar Holdings. It trades about 0.26 of its potential returns per unit of risk. Libstar Holdings is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  43,600  in Libstar Holdings on September 5, 2024 and sell it today you would earn a total of  900.00  from holding Libstar Holdings or generate 2.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.65%
Values	Daily Returns

FNB Government Inflation  vs.  Libstar Holdings

FNB Government Inflation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FNB Government Inflation has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong forward indicators, FNB Government is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Libstar Holdings

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Libstar Holdings are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Libstar Holdings may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with FNB Government and Libstar Holdings

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

The idea behind FNB Government Inflation and Libstar Holdings 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.