Correlation Between BBB Foods and Lipocine

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

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

Diversification Opportunities for BBB Foods and Lipocine

0.48

Correlation Coefficient

BBB Foods  Lipocine

Very weak diversification

The 3 months correlation between BBB and Lipocine is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding BBB Foods and Lipocine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lipocine and BBB Foods 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 BBB Foods are associated (or correlated) with Lipocine. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lipocine has no effect on the direction of BBB Foods i.e., BBB Foods and Lipocine go up and down completely randomly.

Pair Corralation between BBB Foods and Lipocine

Given the investment horizon of 90 days BBB Foods is expected to generate 0.62 times more return on investment than Lipocine. However, BBB Foods is 1.61 times less risky than Lipocine. It trades about 0.06 of its potential returns per unit of risk. Lipocine is currently generating about -0.04 per unit of risk. If you would invest  2,606  in BBB Foods on September 21, 2024 and sell it today you would earn a total of  355.00  from holding BBB Foods or generate 13.62% return on investment over 90 days.

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

BBB Foods  vs.  Lipocine

BBB Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BBB Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, BBB Foods is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Lipocine

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lipocine are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain fundamental indicators, Lipocine may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with BBB Foods and Lipocine

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

The idea behind BBB Foods and Lipocine 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.