Correlation Between Lake Materials and Union Materials
Can any of the company-specific risk be diversified away by investing in both Lake Materials and Union 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 Lake Materials and Union Materials 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 Union Materials Corp, you can compare the effects of market volatilities on Lake Materials and Union 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 Lake Materials with a short position of Union Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lake Materials and Union Materials.
Diversification Opportunities for Lake Materials and Union Materials
-0.34 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Lake and Union is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Lake Materials Co and Union Materials Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Union Materials Corp 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 Union Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Union Materials Corp has no effect on the direction of Lake Materials i.e., Lake Materials and Union Materials go up and down completely randomly.
Pair Corralation between Lake Materials and Union Materials
Assuming the 90 days trading horizon Lake Materials Co is expected to generate 1.84 times more return on investment than Union Materials. However, Lake Materials is 1.84 times more volatile than Union Materials Corp. It trades about 0.13 of its potential returns per unit of risk. Union Materials Corp is currently generating about -0.04 per unit of risk. If you would invest 1,096,000 in Lake Materials Co on December 30, 2024 and sell it today you would earn a total of 404,000 from holding Lake Materials Co or generate 36.86% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Insignificant |
Accuracy | 100.0% |
Values | Daily Returns |
Lake Materials Co vs. Union Materials Corp
Performance |
Timeline |
Lake Materials |
Union Materials Corp |
Lake Materials and Union Materials Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Lake Materials and Union Materials
The main advantage of trading using opposite Lake Materials and Union Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lake Materials position performs unexpectedly, Union 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 Union Materials will offset losses from the drop in Union Materials' long position.Lake Materials vs. ENERGYMACHINERY KOREA CoLtd | Lake Materials vs. Seoam Machinery Industry | Lake Materials vs. Woorim Machinery Co | Lake Materials vs. Tway Air Co |
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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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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