Correlation Between Legend Holdings and Lenovo Group

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

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

Diversification Opportunities for Legend Holdings and Lenovo Group

0.38

Correlation Coefficient

Legend Holdings  Lenovo Group

Weak diversification

The 3 months correlation between Legend and Lenovo is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Legend Holdings and Lenovo Group Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lenovo Group Limited and Legend Holdings 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 Legend Holdings are associated (or correlated) with Lenovo Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lenovo Group Limited has no effect on the direction of Legend Holdings i.e., Legend Holdings and Lenovo Group go up and down completely randomly.

Pair Corralation between Legend Holdings and Lenovo Group

Assuming the 90 days horizon Legend Holdings is expected to generate 1.12 times less return on investment than Lenovo Group. But when comparing it to its historical volatility, Legend Holdings is 1.02 times less risky than Lenovo Group. It trades about 0.12 of its potential returns per unit of risk. Lenovo Group Limited is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  107.00  in Lenovo Group Limited on September 22, 2024 and sell it today you would earn a total of  9.00  from holding Lenovo Group Limited or generate 8.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.65%
Values	Daily Returns

Legend Holdings  vs.  Lenovo Group Limited

Legend Holdings

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Legend Holdings are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Legend Holdings reported solid returns over the last few months and may actually be approaching a breakup point.

Lenovo Group Limited

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Lenovo Group Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Lenovo Group reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Legend Holdings and Lenovo Group

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

The idea behind Legend Holdings and Lenovo Group Limited 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.

Check out your portfolio center.

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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.