Correlation Between Indutrade and Lifco AB

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

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

Diversification Opportunities for Indutrade and Lifco AB

0.98

Correlation Coefficient

Indutrade  Lifco AB

Almost no diversification

The 3 months correlation between Indutrade and Lifco is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Indutrade AB and Lifco AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lifco AB and Indutrade 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 Indutrade AB are associated (or correlated) with Lifco AB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lifco AB has no effect on the direction of Indutrade i.e., Indutrade and Lifco AB go up and down completely randomly.

Pair Corralation between Indutrade and Lifco AB

Assuming the 90 days trading horizon Indutrade is expected to generate 1.19 times less return on investment than Lifco AB. But when comparing it to its historical volatility, Indutrade AB is 1.14 times less risky than Lifco AB. It trades about 0.22 of its potential returns per unit of risk. Lifco AB is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  32,060  in Lifco AB on November 29, 2024 and sell it today you would earn a total of  5,260  from holding Lifco AB or generate 16.41% return on investment over 90 days.

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

Indutrade AB  vs.  Lifco AB

Indutrade AB

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Indutrade AB are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Indutrade unveiled solid returns over the last few months and may actually be approaching a breakup point.

Lifco AB

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lifco AB are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain fundamental indicators, Lifco AB sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Indutrade and Lifco AB

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

The idea behind Indutrade AB and Lifco AB 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.