Correlation Between Lucky Cement and Altern Energy

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

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

Diversification Opportunities for Lucky Cement and Altern Energy

0.73

Correlation Coefficient

Lucky Cement  Altern Energy

Poor diversification

The 3 months correlation between Lucky and Altern is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Lucky Cement and Altern Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Altern Energy and Lucky Cement 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 Lucky Cement are associated (or correlated) with Altern Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Altern Energy has no effect on the direction of Lucky Cement i.e., Lucky Cement and Altern Energy go up and down completely randomly.

Pair Corralation between Lucky Cement and Altern Energy

Assuming the 90 days trading horizon Lucky Cement is expected to generate 0.75 times more return on investment than Altern Energy. However, Lucky Cement is 1.34 times less risky than Altern Energy. It trades about 0.1 of its potential returns per unit of risk. Altern Energy is currently generating about 0.07 per unit of risk. If you would invest  72,782  in Lucky Cement on October 24, 2024 and sell it today you would earn a total of  37,366  from holding Lucky Cement or generate 51.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.59%
Values	Daily Returns

Lucky Cement  vs.  Altern Energy

Lucky Cement

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lucky Cement are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Lucky Cement sustained solid returns over the last few months and may actually be approaching a breakup point.

Altern Energy

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Altern Energy are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Altern Energy sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lucky Cement and Altern Energy

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

The idea behind Lucky Cement and Altern Energy 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.