Correlation Between Dis Chem and Lighthouse Capital

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

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

Diversification Opportunities for Dis Chem and Lighthouse Capital

0.18

Correlation Coefficient

Dis Chem  Lighthouse Capital

Average diversification

The 3 months correlation between Dis and Lighthouse is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Dis Chem Pharmacies and Lighthouse Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lighthouse Capital and Dis Chem 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 Dis Chem Pharmacies are associated (or correlated) with Lighthouse Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lighthouse Capital has no effect on the direction of Dis Chem i.e., Dis Chem and Lighthouse Capital go up and down completely randomly.

Pair Corralation between Dis Chem and Lighthouse Capital

Assuming the 90 days trading horizon Dis Chem Pharmacies is expected to under-perform the Lighthouse Capital. But the stock apears to be less risky and, when comparing its historical volatility, Dis Chem Pharmacies is 1.24 times less risky than Lighthouse Capital. The stock trades about -0.22 of its potential returns per unit of risk. The Lighthouse Capital is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  83,000  in Lighthouse Capital on December 23, 2024 and sell it today you would lose (3,700) from holding Lighthouse Capital or give up 4.46% of portfolio value over 90 days.

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

Dis Chem Pharmacies  vs.  Lighthouse Capital

Dis Chem Pharmacies

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dis Chem Pharmacies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Lighthouse Capital

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lighthouse Capital has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Lighthouse Capital is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Dis Chem and Lighthouse Capital

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

The idea behind Dis Chem Pharmacies and Lighthouse Capital 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.