Correlation Between Lealea Enterprise and Lan Fa

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

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

Diversification Opportunities for Lealea Enterprise and Lan Fa

0.52

Correlation Coefficient

Lealea Enterprise  Lan Fa

Very weak diversification

The 3 months correlation between Lealea and Lan is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Lealea Enterprise Co and Lan Fa Textile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lan Fa Textile and Lealea Enterprise 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 Lealea Enterprise Co are associated (or correlated) with Lan Fa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lan Fa Textile has no effect on the direction of Lealea Enterprise i.e., Lealea Enterprise and Lan Fa go up and down completely randomly.

Pair Corralation between Lealea Enterprise and Lan Fa

Assuming the 90 days trading horizon Lealea Enterprise Co is expected to generate 1.56 times more return on investment than Lan Fa. However, Lealea Enterprise is 1.56 times more volatile than Lan Fa Textile. It trades about -0.01 of its potential returns per unit of risk. Lan Fa Textile is currently generating about -0.08 per unit of risk. If you would invest  929.00  in Lealea Enterprise Co on September 16, 2024 and sell it today you would lose (11.00) from holding Lealea Enterprise Co or give up 1.18% of portfolio value over 90 days.

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

Lealea Enterprise Co  vs.  Lan Fa Textile

Lealea Enterprise

Risk-Adjusted Performance

0 of 100

Very Weak

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

Lan Fa Textile

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Lealea Enterprise and Lan Fa

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

The idea behind Lealea Enterprise Co and Lan Fa Textile 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.