Correlation Between Estee Lauder and Li Bang

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

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

Diversification Opportunities for Estee Lauder and Li Bang

-0.26

Correlation Coefficient

Estee Lauder  Li Bang

Very good diversification

The 3 months correlation between Estee and LBGJ is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Estee Lauder Companies and Li Bang International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Li Bang International and Estee Lauder 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 Estee Lauder Companies are associated (or correlated) with Li Bang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Li Bang International has no effect on the direction of Estee Lauder i.e., Estee Lauder and Li Bang go up and down completely randomly.

Pair Corralation between Estee Lauder and Li Bang

Allowing for the 90-day total investment horizon Estee Lauder Companies is expected to generate 0.24 times more return on investment than Li Bang. However, Estee Lauder Companies is 4.11 times less risky than Li Bang. It trades about 0.11 of its potential returns per unit of risk. Li Bang International is currently generating about -0.02 per unit of risk. If you would invest  6,555  in Estee Lauder Companies on October 6, 2024 and sell it today you would earn a total of  661.00  from holding Estee Lauder Companies or generate 10.08% return on investment over 90 days.

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

Estee Lauder Companies  vs.  Li Bang International

Estee Lauder Companies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Estee Lauder Companies has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's essential indicators remain quite persistent which may send shares a bit higher in February 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Li Bang International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Li Bang International has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively steady technical and fundamental indicators, Li Bang is not utilizing all of its potentials. The current stock price chaos, may contribute to medium-term losses for the stakeholders.

Pair Trading with Estee Lauder and Li Bang

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

The idea behind Estee Lauder Companies and Li Bang International 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.