Correlation Between Phonex and Liquidity Services

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

By analyzing existing cross correlation between Phonex Inc and Liquidity Services, you can compare the effects of market volatilities on Phonex and Liquidity Services 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 Phonex with a short position of Liquidity Services. Check out your portfolio center. Please also check ongoing floating volatility patterns of Phonex and Liquidity Services.

Diversification Opportunities for Phonex and Liquidity Services

0.4

Correlation Coefficient

Phonex  Liquidity Services

Very weak diversification

The 3 months correlation between Phonex and Liquidity is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Phonex Inc and Liquidity Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liquidity Services and Phonex 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 Phonex Inc are associated (or correlated) with Liquidity Services. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liquidity Services has no effect on the direction of Phonex i.e., Phonex and Liquidity Services go up and down completely randomly.

Pair Corralation between Phonex and Liquidity Services

Given the investment horizon of 90 days Phonex is expected to generate 8.99 times less return on investment than Liquidity Services. But when comparing it to its historical volatility, Phonex Inc is 2.2 times less risky than Liquidity Services. It trades about 0.07 of its potential returns per unit of risk. Liquidity Services is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  2,490  in Liquidity Services on September 16, 2024 and sell it today you would earn a total of  1,064  from holding Liquidity Services or generate 42.73% return on investment over 90 days.

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

Phonex Inc  vs.  Liquidity Services

Phonex Inc

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Phonex Inc are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak technical indicators, Phonex may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Liquidity Services

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Liquidity Services are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile fundamental indicators, Liquidity Services unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Phonex and Liquidity Services

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

The idea behind Phonex Inc and Liquidity Services 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.