Correlation Between Li Ning and YETI Holdings

Can any of the company-specific risk be diversified away by investing in both Li Ning and YETI 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 Li Ning and YETI Holdings 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 YETI Holdings, you can compare the effects of market volatilities on Li Ning and YETI 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 Li Ning with a short position of YETI Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Li Ning and YETI Holdings.

Diversification Opportunities for Li Ning and YETI Holdings

0.4

Correlation Coefficient

Li Ning  YETI Holdings

Very weak diversification

The 3 months correlation between LNNGY and YETI is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Li Ning Co and YETI Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on YETI Holdings 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 YETI Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of YETI Holdings has no effect on the direction of Li Ning i.e., Li Ning and YETI Holdings go up and down completely randomly.

Pair Corralation between Li Ning and YETI Holdings

Assuming the 90 days horizon Li Ning Co is expected to generate 2.25 times more return on investment than YETI Holdings. However, Li Ning is 2.25 times more volatile than YETI Holdings. It trades about 0.12 of its potential returns per unit of risk. YETI Holdings is currently generating about 0.1 per unit of risk. If you would invest  4,131  in Li Ning Co on September 14, 2024 and sell it today you would earn a total of  1,385  from holding Li Ning Co or generate 33.53% return on investment over 90 days.

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

Li Ning Co  vs.  YETI Holdings

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.

YETI Holdings

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in YETI Holdings are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile basic indicators, YETI Holdings demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Li Ning and YETI Holdings

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

The idea behind Li Ning Co and YETI 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.