Correlation Between Cogna Educacao and Lixiang Education

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

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

Diversification Opportunities for Cogna Educacao and Lixiang Education

0.79

Correlation Coefficient

Cogna Educacao  Lixiang Education

Poor diversification

The 3 months correlation between Cogna and Lixiang is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Cogna Educacao SA and Lixiang Education Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lixiang Education Holding and Cogna Educacao 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 Cogna Educacao SA are associated (or correlated) with Lixiang Education. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lixiang Education Holding has no effect on the direction of Cogna Educacao i.e., Cogna Educacao and Lixiang Education go up and down completely randomly.

Pair Corralation between Cogna Educacao and Lixiang Education

Assuming the 90 days horizon Cogna Educacao SA is expected to generate 1.15 times more return on investment than Lixiang Education. However, Cogna Educacao is 1.15 times more volatile than Lixiang Education Holding. It trades about 0.15 of its potential returns per unit of risk. Lixiang Education Holding is currently generating about 0.16 per unit of risk. If you would invest  17.00  in Cogna Educacao SA on December 22, 2024 and sell it today you would earn a total of  14.00  from holding Cogna Educacao SA or generate 82.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

Cogna Educacao SA  vs.  Lixiang Education Holding

Cogna Educacao SA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cogna Educacao SA are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Cogna Educacao showed solid returns over the last few months and may actually be approaching a breakup point.

Lixiang Education Holding

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lixiang Education Holding are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain technical and fundamental indicators, Lixiang Education demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cogna Educacao and Lixiang Education

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

The idea behind Cogna Educacao SA and Lixiang Education Holding 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.