Correlation Between Lifecare and Clean Seas

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

By analyzing existing cross correlation between Lifecare AS and Clean Seas Seafood, you can compare the effects of market volatilities on Lifecare and Clean Seas 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 Lifecare with a short position of Clean Seas. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lifecare and Clean Seas.

Diversification Opportunities for Lifecare and Clean Seas

0.92

Correlation Coefficient

Lifecare  Clean Seas

Almost no diversification

The 3 months correlation between Lifecare and Clean is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Lifecare AS and Clean Seas Seafood in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Clean Seas Seafood and Lifecare 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 Lifecare AS are associated (or correlated) with Clean Seas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Clean Seas Seafood has no effect on the direction of Lifecare i.e., Lifecare and Clean Seas go up and down completely randomly.

Pair Corralation between Lifecare and Clean Seas

Assuming the 90 days trading horizon Lifecare AS is expected to generate 1.96 times more return on investment than Clean Seas. However, Lifecare is 1.96 times more volatile than Clean Seas Seafood. It trades about 0.01 of its potential returns per unit of risk. Clean Seas Seafood is currently generating about -0.08 per unit of risk. If you would invest  2,187  in Lifecare AS on September 12, 2024 and sell it today you would lose (897.00) from holding Lifecare AS or give up 41.02% of portfolio value over 90 days.

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

Lifecare AS  vs.  Clean Seas Seafood

Lifecare AS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lifecare AS has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's essential indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Clean Seas Seafood

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Clean Seas Seafood has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Lifecare and Clean Seas

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

The idea behind Lifecare AS and Clean Seas Seafood 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .