Correlation Between LS Materials and Parksystems Corp

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

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

Diversification Opportunities for LS Materials and Parksystems Corp

0.2

Correlation Coefficient

LS Materials  Parksystems Corp

Modest diversification

The 3 months correlation between 417200 and Parksystems is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding LS Materials and Parksystems Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Parksystems Corp and LS 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 LS Materials are associated (or correlated) with Parksystems Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Parksystems Corp has no effect on the direction of LS Materials i.e., LS Materials and Parksystems Corp go up and down completely randomly.

Pair Corralation between LS Materials and Parksystems Corp

Assuming the 90 days trading horizon LS Materials is expected to generate 13.46 times less return on investment than Parksystems Corp. In addition to that, LS Materials is 1.25 times more volatile than Parksystems Corp. It trades about 0.01 of its total potential returns per unit of risk. Parksystems Corp is currently generating about 0.1 per unit of volatility. If you would invest  20,700,000  in Parksystems Corp on October 24, 2024 and sell it today you would earn a total of  4,050,000  from holding Parksystems Corp or generate 19.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

LS Materials  vs.  Parksystems Corp

LS Materials

Risk-Adjusted Performance

0 of 100

Very Weak

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

Parksystems Corp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Parksystems Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Parksystems Corp sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with LS Materials and Parksystems Corp

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

The idea behind LS Materials and Parksystems Corp 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.