Correlation Between Legacy Education and Obayashi

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

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

Diversification Opportunities for Legacy Education and Obayashi

0.87

Correlation Coefficient

Legacy Education  Obayashi

Very poor diversification

The 3 months correlation between Legacy and Obayashi is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Legacy Education and Obayashi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Obayashi and Legacy Education 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 Legacy Education are associated (or correlated) with Obayashi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Obayashi has no effect on the direction of Legacy Education i.e., Legacy Education and Obayashi go up and down completely randomly.

Pair Corralation between Legacy Education and Obayashi

Given the investment horizon of 90 days Legacy Education is expected to generate 2.02 times more return on investment than Obayashi. However, Legacy Education is 2.02 times more volatile than Obayashi. It trades about 0.2 of its potential returns per unit of risk. Obayashi is currently generating about 0.11 per unit of risk. If you would invest  468.00  in Legacy Education on October 1, 2024 and sell it today you would earn a total of  357.00  from holding Legacy Education or generate 76.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	96.92%
Values	Daily Returns

Legacy Education  vs.  Obayashi

Legacy Education

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Legacy Education are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal fundamental indicators, Legacy Education showed solid returns over the last few months and may actually be approaching a breakup point.

Obayashi

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Obayashi are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating fundamental indicators, Obayashi reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Legacy Education and Obayashi

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

The idea behind Legacy Education and Obayashi 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.