Correlation Between Verde Clean and LB Foster

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

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

Diversification Opportunities for Verde Clean and LB Foster

0.17

Correlation Coefficient

Verde Clean  LB Foster

Average diversification

The 3 months correlation between Verde and FSTR is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Verde Clean Fuels and LB Foster in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LB Foster and Verde Clean 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 Verde Clean Fuels are associated (or correlated) with LB Foster. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LB Foster has no effect on the direction of Verde Clean i.e., Verde Clean and LB Foster go up and down completely randomly.

Pair Corralation between Verde Clean and LB Foster

Given the investment horizon of 90 days Verde Clean Fuels is expected to under-perform the LB Foster. In addition to that, Verde Clean is 1.05 times more volatile than LB Foster. It trades about -0.21 of its total potential returns per unit of risk. LB Foster is currently generating about 0.39 per unit of volatility. If you would invest  2,336  in LB Foster on September 13, 2024 and sell it today you would earn a total of  571.00  from holding LB Foster or generate 24.44% return on investment over 90 days.

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

Verde Clean Fuels  vs.  LB Foster

Verde Clean Fuels

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Verde Clean Fuels has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Verde Clean is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

LB Foster

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in LB Foster are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, LB Foster reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Verde Clean and LB Foster

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

The idea behind Verde Clean Fuels and LB Foster 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.