Correlation Between LHA Market and Dynamic Short

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

By analyzing existing cross correlation between LHA Market State and Dynamic Short Short Term, you can compare the effects of market volatilities on LHA Market and Dynamic Short 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 LHA Market with a short position of Dynamic Short. Check out your portfolio center. Please also check ongoing floating volatility patterns of LHA Market and Dynamic Short.

Diversification Opportunities for LHA Market and Dynamic Short

0.35

Correlation Coefficient

LHA Market  Dynamic Short

Weak diversification

The 3 months correlation between LHA and Dynamic is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding LHA Market State and Dynamic Short Short Term in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dynamic Short Short and LHA Market 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 LHA Market State are associated (or correlated) with Dynamic Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dynamic Short Short has no effect on the direction of LHA Market i.e., LHA Market and Dynamic Short go up and down completely randomly.

Pair Corralation between LHA Market and Dynamic Short

Given the investment horizon of 90 days LHA Market is expected to generate 7.44 times less return on investment than Dynamic Short. But when comparing it to its historical volatility, LHA Market State is 2.69 times less risky than Dynamic Short. It trades about 0.03 of its potential returns per unit of risk. Dynamic Short Short Term is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2,624  in Dynamic Short Short Term on September 14, 2024 and sell it today you would earn a total of  134.00  from holding Dynamic Short Short Term or generate 5.11% return on investment over 90 days.

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

LHA Market State  vs.  Dynamic Short Short Term

LHA Market State

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in LHA Market State are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, LHA Market is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Dynamic Short Short

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Dynamic Short Short Term are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong forward indicators, Dynamic Short is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with LHA Market and Dynamic Short

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

The idea behind LHA Market State and Dynamic Short Short Term 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.