Correlation Between Li Ning and East Japan
Can any of the company-specific risk be diversified away by investing in both Li Ning and East Japan 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 Li Ning and East Japan into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Li Ning Company and East Japan Railway, you can compare the effects of market volatilities on Li Ning and East Japan 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 Li Ning with a short position of East Japan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Li Ning and East Japan.
Diversification Opportunities for Li Ning and East Japan
-0.38 | Correlation Coefficient |
Very good diversification
The 3 months correlation between LNLB and East is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Li Ning Company and East Japan Railway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on East Japan Railway and Li Ning 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 Li Ning Company are associated (or correlated) with East Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of East Japan Railway has no effect on the direction of Li Ning i.e., Li Ning and East Japan go up and down completely randomly.
Pair Corralation between Li Ning and East Japan
Assuming the 90 days trading horizon Li Ning Company is expected to generate 1.51 times more return on investment than East Japan. However, Li Ning is 1.51 times more volatile than East Japan Railway. It trades about 0.12 of its potential returns per unit of risk. East Japan Railway is currently generating about -0.03 per unit of risk. If you would invest 191.00 in Li Ning Company on September 23, 2024 and sell it today you would earn a total of 14.00 from holding Li Ning Company or generate 7.33% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Insignificant |
Accuracy | 100.0% |
Values | Daily Returns |
Li Ning Company vs. East Japan Railway
Performance |
Timeline |
Li Ning Company |
East Japan Railway |
Li Ning and East Japan Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Li Ning and East Japan
The main advantage of trading using opposite Li Ning and East Japan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Li Ning position performs unexpectedly, East Japan 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 East Japan will offset losses from the drop in East Japan's long position.Li Ning vs. Booking Holdings | Li Ning vs. ANTA Sports Products | Li Ning vs. Trip Group Limited | Li Ning vs. Royal Caribbean Group |
East Japan vs. Union Pacific | East Japan vs. Canadian National Railway | East Japan vs. CSX Corporation | East Japan vs. MTR Limited |
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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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