Correlation Between Solus Advanced and LegoChem Biosciences

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

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

Diversification Opportunities for Solus Advanced and LegoChem Biosciences

0.34

Correlation Coefficient

Solus Advanced  LegoChem Biosciences

Weak diversification

The 3 months correlation between Solus and LegoChem is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Solus Advanced Materials and LegoChem Biosciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LegoChem Biosciences and Solus Advanced 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 Solus Advanced Materials are associated (or correlated) with LegoChem Biosciences. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LegoChem Biosciences has no effect on the direction of Solus Advanced i.e., Solus Advanced and LegoChem Biosciences go up and down completely randomly.

Pair Corralation between Solus Advanced and LegoChem Biosciences

Assuming the 90 days trading horizon Solus Advanced Materials is expected to generate 1.27 times more return on investment than LegoChem Biosciences. However, Solus Advanced is 1.27 times more volatile than LegoChem Biosciences. It trades about 0.03 of its potential returns per unit of risk. LegoChem Biosciences is currently generating about 0.0 per unit of risk. If you would invest  862,959  in Solus Advanced Materials on December 24, 2024 and sell it today you would earn a total of  17,041  from holding Solus Advanced Materials or generate 1.97% return on investment over 90 days.

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

Solus Advanced Materials  vs.  LegoChem Biosciences

Solus Advanced Materials

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Solus Advanced Materials are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Solus Advanced may actually be approaching a critical reversion point that can send shares even higher in April 2025.

LegoChem Biosciences

Risk-Adjusted Performance

Weak

Over the last 90 days LegoChem Biosciences has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, LegoChem Biosciences is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Solus Advanced and LegoChem Biosciences

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

The idea behind Solus Advanced Materials and LegoChem Biosciences 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.