Correlation Between Carnival Plc and Li Ning

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

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

Diversification Opportunities for Carnival Plc and Li Ning

0.09

Correlation Coefficient

Carnival Plc  Li Ning

Significant diversification

The 3 months correlation between Carnival and LNNGY is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Carnival Plc ADS and Li Ning Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Li Ning and Carnival Plc 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 Carnival Plc ADS are associated (or correlated) with Li Ning. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Li Ning has no effect on the direction of Carnival Plc i.e., Carnival Plc and Li Ning go up and down completely randomly.

Pair Corralation between Carnival Plc and Li Ning

Considering the 90-day investment horizon Carnival Plc ADS is expected to generate 0.47 times more return on investment than Li Ning. However, Carnival Plc ADS is 2.11 times less risky than Li Ning. It trades about 0.26 of its potential returns per unit of risk. Li Ning Co is currently generating about 0.12 per unit of risk. If you would invest  1,604  in Carnival Plc ADS on September 14, 2024 and sell it today you would earn a total of  747.00  from holding Carnival Plc ADS or generate 46.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Carnival Plc ADS  vs.  Li Ning Co

Carnival Plc ADS

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Carnival Plc ADS are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile basic indicators, Carnival Plc disclosed solid returns over the last few months and may actually be approaching a breakup point.

Li Ning

Risk-Adjusted Performance

9 of 100

OK

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

Pair Trading with Carnival Plc and Li Ning

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

The idea behind Carnival Plc ADS and Li Ning Co 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.