Correlation Between Lake Materials and SBI Investment

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

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

Diversification Opportunities for Lake Materials and SBI Investment

-0.43

Correlation Coefficient

Lake Materials  SBI Investment

Very good diversification

The 3 months correlation between Lake and SBI is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Lake Materials Co and SBI Investment KOREA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SBI Investment KOREA and Lake 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 Lake Materials Co are associated (or correlated) with SBI Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SBI Investment KOREA has no effect on the direction of Lake Materials i.e., Lake Materials and SBI Investment go up and down completely randomly.

Pair Corralation between Lake Materials and SBI Investment

Assuming the 90 days trading horizon Lake Materials Co is expected to generate 2.86 times more return on investment than SBI Investment. However, Lake Materials is 2.86 times more volatile than SBI Investment KOREA. It trades about 0.12 of its potential returns per unit of risk. SBI Investment KOREA is currently generating about -0.11 per unit of risk. If you would invest  1,181,658  in Lake Materials Co on December 22, 2024 and sell it today you would earn a total of  384,342  from holding Lake Materials Co or generate 32.53% return on investment over 90 days.

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

Lake Materials Co  vs.  SBI Investment KOREA

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 9 (%) 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.

SBI Investment KOREA

Risk-Adjusted Performance

Very Weak

Over the last 90 days SBI Investment KOREA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Lake Materials and SBI Investment

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

The idea behind Lake Materials Co and SBI Investment KOREA 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.