Correlation Between LBA and Definitive

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

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

Diversification Opportunities for LBA and Definitive

0.83

Correlation Coefficient

LBA  Definitive

Very poor diversification

The 3 months correlation between LBA and Definitive is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding LBA and Definitive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Definitive and LBA 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 LBA are associated (or correlated) with Definitive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Definitive has no effect on the direction of LBA i.e., LBA and Definitive go up and down completely randomly.

Pair Corralation between LBA and Definitive

Assuming the 90 days trading horizon LBA is expected to generate 3.83 times less return on investment than Definitive. But when comparing it to its historical volatility, LBA is 4.88 times less risky than Definitive. It trades about 0.26 of its potential returns per unit of risk. Definitive is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  7.52  in Definitive on June 17, 2025 and sell it today you would earn a total of  30.48  from holding Definitive or generate 405.32% return on investment over 90 days.

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

LBA  vs.  Definitive

LBA

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in LBA are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, LBA exhibited solid returns over the last few months and may actually be approaching a breakup point.

Definitive

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Definitive are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Definitive exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with LBA and Definitive

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

The idea behind LBA and Definitive 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.