Correlation Between Lan Fa and Everest Textile

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

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

Diversification Opportunities for Lan Fa and Everest Textile

0.62

Correlation Coefficient

Lan Fa  Everest Textile

Poor diversification

The 3 months correlation between Lan and Everest is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Lan Fa Textile and Everest Textile Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Everest Textile and Lan Fa 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 Lan Fa Textile are associated (or correlated) with Everest Textile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Everest Textile has no effect on the direction of Lan Fa i.e., Lan Fa and Everest Textile go up and down completely randomly.

Pair Corralation between Lan Fa and Everest Textile

Assuming the 90 days trading horizon Lan Fa Textile is expected to under-perform the Everest Textile. But the stock apears to be less risky and, when comparing its historical volatility, Lan Fa Textile is 1.08 times less risky than Everest Textile. The stock trades about -0.08 of its potential returns per unit of risk. The Everest Textile Co is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  716.00  in Everest Textile Co on September 17, 2024 and sell it today you would lose (13.00) from holding Everest Textile Co or give up 1.82% of portfolio value over 90 days.

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

Lan Fa Textile  vs.  Everest Textile Co

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.

Everest Textile

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Everest Textile Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Everest Textile 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 Lan Fa and Everest Textile

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

The idea behind Lan Fa Textile and Everest Textile Co 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.