Correlation Between Lotes and IBASE Technology

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

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

Diversification Opportunities for Lotes and IBASE Technology

-0.42

Correlation Coefficient

Lotes  IBASE Technology

Very good diversification

The 3 months correlation between Lotes and IBASE is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Lotes Co and IBASE Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IBASE Technology and Lotes 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 Lotes Co are associated (or correlated) with IBASE Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IBASE Technology has no effect on the direction of Lotes i.e., Lotes and IBASE Technology go up and down completely randomly.

Pair Corralation between Lotes and IBASE Technology

Assuming the 90 days trading horizon Lotes Co is expected to generate 2.17 times more return on investment than IBASE Technology. However, Lotes is 2.17 times more volatile than IBASE Technology. It trades about 0.1 of its potential returns per unit of risk. IBASE Technology is currently generating about -0.02 per unit of risk. If you would invest  100,500  in Lotes Co on October 7, 2024 and sell it today you would earn a total of  86,500  from holding Lotes Co or generate 86.07% return on investment over 90 days.

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

Lotes Co  vs.  IBASE Technology

Lotes

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lotes Co are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Lotes showed solid returns over the last few months and may actually be approaching a breakup point.

IBASE Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IBASE Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, IBASE Technology is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Lotes and IBASE Technology

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

The idea behind Lotes Co and IBASE Technology 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.