Correlation Between Flow Capital and Legal General

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

By analyzing existing cross correlation between Flow Capital Corp and Legal General Group, you can compare the effects of market volatilities on Flow Capital and Legal General 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 Flow Capital with a short position of Legal General. Check out your portfolio center. Please also check ongoing floating volatility patterns of Flow Capital and Legal General.

Diversification Opportunities for Flow Capital and Legal General

0.3

Correlation Coefficient

Flow Capital  Legal General

Weak diversification

The 3 months correlation between Flow and Legal is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Flow Capital Corp and Legal General Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Legal General Group and Flow Capital 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 Flow Capital Corp are associated (or correlated) with Legal General. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Legal General Group has no effect on the direction of Flow Capital i.e., Flow Capital and Legal General go up and down completely randomly.

Pair Corralation between Flow Capital and Legal General

Assuming the 90 days horizon Flow Capital is expected to generate 1.95 times less return on investment than Legal General. But when comparing it to its historical volatility, Flow Capital Corp is 2.32 times less risky than Legal General. It trades about 0.15 of its potential returns per unit of risk. Legal General Group is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1,494  in Legal General Group on February 12, 2024 and sell it today you would earn a total of  78.00  from holding Legal General Group or generate 5.22% return on investment over 90 days.

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

Flow Capital Corp  vs.  Legal General Group

Flow Capital Corp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Flow Capital Corp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental indicators, Flow Capital is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Legal General Group

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Legal General Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Legal General may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Flow Capital and Legal General

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

The idea behind Flow Capital Corp and Legal General 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.