Correlation Between Liquidity Services and Rakuten

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

By analyzing existing cross correlation between Liquidity Services and Rakuten Inc ADR, you can compare the effects of market volatilities on Liquidity Services and Rakuten 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 Liquidity Services with a short position of Rakuten. Check out your portfolio center. Please also check ongoing floating volatility patterns of Liquidity Services and Rakuten.

Diversification Opportunities for Liquidity Services and Rakuten

-0.53

Correlation Coefficient

Liquidity Services  Rakuten

Excellent diversification

The 3 months correlation between Liquidity and Rakuten is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Liquidity Services and Rakuten Inc ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rakuten Inc ADR and Liquidity Services 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 Liquidity Services are associated (or correlated) with Rakuten. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rakuten Inc ADR has no effect on the direction of Liquidity Services i.e., Liquidity Services and Rakuten go up and down completely randomly.

Pair Corralation between Liquidity Services and Rakuten

Given the investment horizon of 90 days Liquidity Services is expected to generate 0.57 times more return on investment than Rakuten. However, Liquidity Services is 1.76 times less risky than Rakuten. It trades about 0.18 of its potential returns per unit of risk. Rakuten Inc ADR is currently generating about -0.1 per unit of risk. If you would invest  2,156  in Liquidity Services on September 4, 2024 and sell it today you would earn a total of  431.00  from holding Liquidity Services or generate 19.99% return on investment over 90 days.

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

Liquidity Services  vs.  Rakuten Inc ADR

Liquidity Services

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Liquidity Services are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak fundamental indicators, Liquidity Services unveiled solid returns over the last few months and may actually be approaching a breakup point.

Rakuten Inc ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rakuten Inc ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Liquidity Services and Rakuten

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

The idea behind Liquidity Services and Rakuten Inc ADR 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.

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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.