Correlation Between Arad and Lesico

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

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

Diversification Opportunities for Arad and Lesico

0.5

Correlation Coefficient

Arad  Lesico

Very weak diversification

The 3 months correlation between Arad and Lesico is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Arad and Lesico in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lesico and Arad 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 Arad are associated (or correlated) with Lesico. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lesico has no effect on the direction of Arad i.e., Arad and Lesico go up and down completely randomly.

Pair Corralation between Arad and Lesico

Assuming the 90 days trading horizon Arad is expected to generate 11.54 times less return on investment than Lesico. But when comparing it to its historical volatility, Arad is 1.92 times less risky than Lesico. It trades about 0.04 of its potential returns per unit of risk. Lesico is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  30,071  in Lesico on September 3, 2024 and sell it today you would earn a total of  10,519  from holding Lesico or generate 34.98% return on investment over 90 days.

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

Arad  vs.  Lesico

Arad

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Arad are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental indicators, Arad is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Lesico

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Lesico are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Lesico sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Arad and Lesico

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

The idea behind Arad and Lesico 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.

Check out your portfolio center.

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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.