Correlation Between Lundin Energy and Necessity Retail

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

By analyzing existing cross correlation between Lundin Energy AB and Necessity Retail REIT, you can compare the effects of market volatilities on Lundin Energy and Necessity Retail 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 Lundin Energy with a short position of Necessity Retail. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lundin Energy and Necessity Retail.

Diversification Opportunities for Lundin Energy and Necessity Retail

-0.75

Correlation Coefficient

Lundin Energy  Necessity Retail

Pay attention - limited upside

The 3 months correlation between Lundin and Necessity is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding Lundin Energy AB and Necessity Retail REIT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Necessity Retail REIT and Lundin Energy 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 Lundin Energy AB are associated (or correlated) with Necessity Retail. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Necessity Retail REIT has no effect on the direction of Lundin Energy i.e., Lundin Energy and Necessity Retail go up and down completely randomly.

Pair Corralation between Lundin Energy and Necessity Retail

Assuming the 90 days horizon Lundin Energy AB is expected to under-perform the Necessity Retail. In addition to that, Lundin Energy is 2.85 times more volatile than Necessity Retail REIT. It trades about -0.02 of its total potential returns per unit of risk. Necessity Retail REIT is currently generating about 0.06 per unit of volatility. If you would invest  1,890  in Necessity Retail REIT on September 13, 2024 and sell it today you would earn a total of  209.00  from holding Necessity Retail REIT or generate 11.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	29.15%
Values	Daily Returns

Lundin Energy AB  vs.  Necessity Retail REIT

Lundin Energy AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lundin Energy AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Necessity Retail REIT

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Necessity Retail REIT has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Necessity Retail is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Lundin Energy and Necessity Retail

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

The idea behind Lundin Energy AB and Necessity Retail REIT 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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.