Correlation Between Lepanto Consolidated and Medco Holdings

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

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

Diversification Opportunities for Lepanto Consolidated and Medco Holdings

0.28

Correlation Coefficient

Lepanto Consolidated  Medco Holdings

Modest diversification

The 3 months correlation between Lepanto and Medco is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Lepanto Consolidated Mining and Medco Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Medco Holdings and Lepanto Consolidated 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 Lepanto Consolidated Mining are associated (or correlated) with Medco Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Medco Holdings has no effect on the direction of Lepanto Consolidated i.e., Lepanto Consolidated and Medco Holdings go up and down completely randomly.

Pair Corralation between Lepanto Consolidated and Medco Holdings

Assuming the 90 days trading horizon Lepanto Consolidated Mining is expected to under-perform the Medco Holdings. But the stock apears to be less risky and, when comparing its historical volatility, Lepanto Consolidated Mining is 3.71 times less risky than Medco Holdings. The stock trades about -0.02 of its potential returns per unit of risk. The Medco Holdings is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  20.00  in Medco Holdings on October 12, 2024 and sell it today you would lose (6.00) from holding Medco Holdings or give up 30.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	42.98%
Values	Daily Returns

Lepanto Consolidated Mining  vs.  Medco Holdings

Lepanto Consolidated

Risk-Adjusted Performance

0 of 100

Very Weak

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

Medco Holdings

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Medco Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather weak technical and fundamental indicators, Medco Holdings exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lepanto Consolidated and Medco Holdings

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

The idea behind Lepanto Consolidated Mining and Medco Holdings 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.