Correlation Between LPP SA and Monnari Trade

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

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

Diversification Opportunities for LPP SA and Monnari Trade

0.5

Correlation Coefficient

LPP SA  Monnari Trade

Very weak diversification

The 3 months correlation between LPP and Monnari is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding LPP SA and Monnari Trade SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Monnari Trade SA and LPP SA 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 LPP SA are associated (or correlated) with Monnari Trade. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Monnari Trade SA has no effect on the direction of LPP SA i.e., LPP SA and Monnari Trade go up and down completely randomly.

Pair Corralation between LPP SA and Monnari Trade

Assuming the 90 days trading horizon LPP SA is expected to generate 1.29 times more return on investment than Monnari Trade. However, LPP SA is 1.29 times more volatile than Monnari Trade SA. It trades about 0.12 of its potential returns per unit of risk. Monnari Trade SA is currently generating about -0.04 per unit of risk. If you would invest  1,596,000  in LPP SA on December 31, 2024 and sell it today you would earn a total of  197,000  from holding LPP SA or generate 12.34% return on investment over 90 days.

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

LPP SA  vs.  Monnari Trade SA

LPP SA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in LPP SA are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, LPP SA reported solid returns over the last few months and may actually be approaching a breakup point.

Monnari Trade SA

Risk-Adjusted Performance

Very Weak

Over the last 90 days Monnari Trade SA has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Monnari Trade is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with LPP SA and Monnari Trade

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

The idea behind LPP SA and Monnari Trade SA 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.