Correlation Between Life Healthcare and Famous Brands

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

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

Diversification Opportunities for Life Healthcare and Famous Brands

0.49

Correlation Coefficient

Life Healthcare  Famous Brands

Very weak diversification

The 3 months correlation between Life and Famous is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Life Healthcare and Famous Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Famous Brands and Life Healthcare 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 Life Healthcare are associated (or correlated) with Famous Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Famous Brands has no effect on the direction of Life Healthcare i.e., Life Healthcare and Famous Brands go up and down completely randomly.

Pair Corralation between Life Healthcare and Famous Brands

Assuming the 90 days trading horizon Life Healthcare is expected to generate 4.17 times less return on investment than Famous Brands. In addition to that, Life Healthcare is 1.48 times more volatile than Famous Brands. It trades about 0.0 of its total potential returns per unit of risk. Famous Brands is currently generating about 0.02 per unit of volatility. If you would invest  601,687  in Famous Brands on September 29, 2024 and sell it today you would earn a total of  76,213  from holding Famous Brands or generate 12.67% return on investment over 90 days.

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

Life Healthcare  vs.  Famous Brands

Life Healthcare

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Life Healthcare are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Life Healthcare is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Famous Brands

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Famous Brands are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Famous Brands may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Life Healthcare and Famous Brands

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

The idea behind Life Healthcare and Famous Brands 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 Stocks Directory module to find actively traded stocks across global markets.