Correlation Between LPL Financial and F5 Networks

Can any of the company-specific risk be diversified away by investing in both LPL Financial and F5 Networks 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 LPL Financial and F5 Networks into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between LPL Financial Holdings and F5 Networks, you can compare the effects of market volatilities on LPL Financial and F5 Networks 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 LPL Financial with a short position of F5 Networks. Check out your portfolio center. Please also check ongoing floating volatility patterns of LPL Financial and F5 Networks.

Diversification Opportunities for LPL Financial and F5 Networks

0.71

Correlation Coefficient

LPL Financial  F5 Networks

Poor diversification

The 3 months correlation between LPL and FFIV is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding LPL Financial Holdings and F5 Networks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on F5 Networks and LPL Financial 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 LPL Financial Holdings are associated (or correlated) with F5 Networks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of F5 Networks has no effect on the direction of LPL Financial i.e., LPL Financial and F5 Networks go up and down completely randomly.

Pair Corralation between LPL Financial and F5 Networks

Given the investment horizon of 90 days LPL Financial Holdings is expected to generate 1.17 times more return on investment than F5 Networks. However, LPL Financial is 1.17 times more volatile than F5 Networks. It trades about -0.11 of its potential returns per unit of risk. F5 Networks is currently generating about -0.18 per unit of risk. If you would invest  26,971  in LPL Financial Holdings on January 19, 2024 and sell it today you would lose (994.00) from holding LPL Financial Holdings or give up 3.69% of portfolio value over 90 days.

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

LPL Financial Holdings  vs.  F5 Networks

LPL Financial Holdings

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in LPL Financial Holdings are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain essential indicators, LPL Financial may actually be approaching a critical reversion point that can send shares even higher in May 2024.

F5 Networks

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days F5 Networks has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable forward indicators, F5 Networks is not utilizing all of its potentials. The newest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with LPL Financial and F5 Networks

The main advantage of trading using opposite LPL Financial and F5 Networks positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LPL Financial position performs unexpectedly, F5 Networks 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 F5 Networks will offset losses from the drop in F5 Networks' long position.

The idea behind LPL Financial Holdings and F5 Networks 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..