Correlation Between Investment and Litigation Capital

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

By analyzing existing cross correlation between The Investment and Litigation Capital Management, you can compare the effects of market volatilities on Investment and Litigation Capital 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 Investment with a short position of Litigation Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Investment and Litigation Capital.

Diversification Opportunities for Investment and Litigation Capital

0.62

Correlation Coefficient

Investment  Litigation Capital

Poor diversification

The 3 months correlation between Investment and Litigation is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding The Investment and Litigation Capital Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Litigation Capital and Investment 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 The Investment are associated (or correlated) with Litigation Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Litigation Capital has no effect on the direction of Investment i.e., Investment and Litigation Capital go up and down completely randomly.

Pair Corralation between Investment and Litigation Capital

Assuming the 90 days trading horizon Investment is expected to generate 7.91 times less return on investment than Litigation Capital. But when comparing it to its historical volatility, The Investment is 4.71 times less risky than Litigation Capital. It trades about 0.08 of its potential returns per unit of risk. Litigation Capital Management is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  9,579  in Litigation Capital Management on September 3, 2024 and sell it today you would earn a total of  2,121  from holding Litigation Capital Management or generate 22.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

The Investment  vs.  Litigation Capital Management

Investment

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in The Investment are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Investment is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Litigation Capital

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Litigation Capital Management are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Litigation Capital exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Investment and Litigation Capital

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

The idea behind The Investment and Litigation Capital Management 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.