Correlation Between Lotus Health and Pengxin International

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

By analyzing existing cross correlation between Lotus Health Group and Pengxin International Mining, you can compare the effects of market volatilities on Lotus Health and Pengxin International 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 Lotus Health with a short position of Pengxin International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lotus Health and Pengxin International.

Diversification Opportunities for Lotus Health and Pengxin International

0.3

Correlation Coefficient

Lotus Health  Pengxin International

Weak diversification

The 3 months correlation between Lotus and Pengxin is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Lotus Health Group and Pengxin International Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pengxin International and Lotus Health 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 Lotus Health Group are associated (or correlated) with Pengxin International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pengxin International has no effect on the direction of Lotus Health i.e., Lotus Health and Pengxin International go up and down completely randomly.

Pair Corralation between Lotus Health and Pengxin International

Assuming the 90 days trading horizon Lotus Health Group is expected to generate 1.5 times more return on investment than Pengxin International. However, Lotus Health is 1.5 times more volatile than Pengxin International Mining. It trades about 0.11 of its potential returns per unit of risk. Pengxin International Mining is currently generating about 0.01 per unit of risk. If you would invest  478.00  in Lotus Health Group on December 26, 2024 and sell it today you would earn a total of  132.00  from holding Lotus Health Group or generate 27.62% return on investment over 90 days.

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

Lotus Health Group  vs.  Pengxin International Mining

Lotus Health Group

Risk-Adjusted Performance

OK

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

Pengxin International

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Lotus Health and Pengxin International

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

The idea behind Lotus Health Group and Pengxin International Mining 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.