Correlation Between Li Ning and Carnival Plc

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

By analyzing existing cross correlation between Li Ning Co and Carnival Plc ADS, you can compare the effects of market volatilities on Li Ning and Carnival Plc 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 Carnival Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Li Ning and Carnival Plc.

Diversification Opportunities for Li Ning and Carnival Plc

0.09

Correlation Coefficient

Li Ning  Carnival Plc

Significant diversification

The 3 months correlation between LNNGY and Carnival is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Li Ning Co and Carnival Plc ADS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carnival Plc ADS 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 Co are associated (or correlated) with Carnival Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Carnival Plc ADS has no effect on the direction of Li Ning i.e., Li Ning and Carnival Plc go up and down completely randomly.

Pair Corralation between Li Ning and Carnival Plc

Assuming the 90 days horizon Li Ning Co is expected to under-perform the Carnival Plc. In addition to that, Li Ning is 1.43 times more volatile than Carnival Plc ADS. It trades about -0.01 of its total potential returns per unit of risk. Carnival Plc ADS is currently generating about 0.09 per unit of volatility. If you would invest  1,311  in Carnival Plc ADS on September 14, 2024 and sell it today you would earn a total of  1,040  from holding Carnival Plc ADS or generate 79.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.63%
Values	Daily Returns

Li Ning Co  vs.  Carnival Plc ADS

Li Ning

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Li Ning Co are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent technical and fundamental indicators, Li Ning showed solid returns over the last few months and may actually be approaching a breakup point.

Carnival Plc ADS

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Carnival Plc ADS are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile basic indicators, Carnival Plc disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Li Ning and Carnival Plc

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

The idea behind Li Ning Co and Carnival Plc ADS 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.