Correlation Between Hana Materials and Lake Materials

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

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

Diversification Opportunities for Hana Materials and Lake Materials

0.82

Correlation Coefficient

Hana Materials  Lake Materials

Very poor diversification

The 3 months correlation between Hana and Lake is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Hana Materials and Lake Materials Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lake Materials and Hana Materials 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 Hana Materials are associated (or correlated) with Lake Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lake Materials has no effect on the direction of Hana Materials i.e., Hana Materials and Lake Materials go up and down completely randomly.

Pair Corralation between Hana Materials and Lake Materials

Assuming the 90 days trading horizon Hana Materials is expected to generate 0.98 times more return on investment than Lake Materials. However, Hana Materials is 1.02 times less risky than Lake Materials. It trades about 0.14 of its potential returns per unit of risk. Lake Materials Co is currently generating about 0.13 per unit of risk. If you would invest  2,295,000  in Hana Materials on December 30, 2024 and sell it today you would earn a total of  935,000  from holding Hana Materials or generate 40.74% return on investment over 90 days.

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

Hana Materials  vs.  Lake Materials Co

Hana Materials

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hana Materials are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hana Materials sustained solid returns over the last few months and may actually be approaching a breakup point.

Lake Materials

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lake Materials Co are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Lake Materials sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hana Materials and Lake Materials

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

The idea behind Hana Materials and Lake Materials 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..