Correlation Between LRN and PAY

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

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

Diversification Opportunities for LRN and PAY

-0.23

Correlation Coefficient

LRN  PAY

Very good diversification

The 3 months correlation between LRN and PAY is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding LRN and PAY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PAY and LRN 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 LRN are associated (or correlated) with PAY. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PAY has no effect on the direction of LRN i.e., LRN and PAY go up and down completely randomly.

Pair Corralation between LRN and PAY

Assuming the 90 days trading horizon LRN is expected to generate 1.56 times more return on investment than PAY. However, LRN is 1.56 times more volatile than PAY. It trades about 0.02 of its potential returns per unit of risk. PAY is currently generating about 0.03 per unit of risk. If you would invest  0.53  in LRN on September 1, 2024 and sell it today you would lose (0.29) from holding LRN or give up 53.59% of portfolio value over 90 days.

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

LRN  vs.  PAY

LRN

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in LRN are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, LRN exhibited solid returns over the last few months and may actually be approaching a breakup point.

PAY

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in PAY are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, PAY exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with LRN and PAY

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

The idea behind LRN and PAY 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.