Correlation Between Lake Materials and Hana Materials

Can any of the company-specific risk be diversified away by investing in both Lake Materials and Hana 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 Hana 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 Hana Materials, you can compare the effects of market volatilities on Lake Materials and Hana 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 Hana Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lake Materials and Hana Materials.

Diversification Opportunities for Lake Materials and Hana Materials

0.82

Correlation Coefficient

Lake Materials  Hana Materials

Very poor diversification

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

Pair Corralation between Lake Materials and Hana Materials

Assuming the 90 days trading horizon Lake Materials is expected to generate 1.07 times less return on investment than Hana Materials. In addition to that, Lake Materials is 1.02 times more volatile than Hana Materials. It trades about 0.13 of its total potential returns per unit of risk. Hana Materials is currently generating about 0.14 per unit of volatility. 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

Lake Materials Co  vs.  Hana Materials

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.

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.

Pair Trading with Lake Materials and Hana Materials

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

The idea behind Lake Materials Co and Hana Materials 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.