Correlation Between Xp and Lion Financial

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

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

Diversification Opportunities for Xp and Lion Financial

-0.35

Correlation Coefficient

Xp  Lion Financial

Very good diversification

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

Pair Corralation between Xp and Lion Financial

Allowing for the 90-day total investment horizon Xp Inc is expected to under-perform the Lion Financial. But the stock apears to be less risky and, when comparing its historical volatility, Xp Inc is 5.93 times less risky than Lion Financial. The stock trades about -0.06 of its potential returns per unit of risk. The Lion Financial Group is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  0.59  in Lion Financial Group on September 4, 2024 and sell it today you would earn a total of  0.26  from holding Lion Financial Group or generate 44.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	97.17%
Values	Daily Returns

Xp Inc  vs.  Lion Financial Group

Xp Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Xp Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Lion Financial Group

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Lion Financial Group are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain essential indicators, Lion Financial showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Xp and Lion Financial

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

The idea behind Xp Inc and Lion Financial Group 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .