Correlation Between IMC SA and LSI Software

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

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

Diversification Opportunities for IMC SA and LSI Software

0.64

Correlation Coefficient

IMC SA  LSI Software

Poor diversification

The 3 months correlation between IMC and LSI is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding IMC SA and LSI Software SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LSI Software SA and IMC SA 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 IMC SA are associated (or correlated) with LSI Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LSI Software SA has no effect on the direction of IMC SA i.e., IMC SA and LSI Software go up and down completely randomly.

Pair Corralation between IMC SA and LSI Software

Assuming the 90 days trading horizon IMC SA is expected to generate 1.64 times more return on investment than LSI Software. However, IMC SA is 1.64 times more volatile than LSI Software SA. It trades about 0.46 of its potential returns per unit of risk. LSI Software SA is currently generating about 0.23 per unit of risk. If you would invest  1,140  in IMC SA on September 13, 2024 and sell it today you would earn a total of  460.00  from holding IMC SA or generate 40.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.65%
Values	Daily Returns

IMC SA  vs.  LSI Software SA

IMC SA

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in IMC SA are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, IMC SA reported solid returns over the last few months and may actually be approaching a breakup point.

LSI Software SA

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in LSI Software SA are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, LSI Software is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with IMC SA and LSI Software

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

The idea behind IMC SA and LSI Software SA 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.