Correlation Between Lumia and Soft World

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

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

Diversification Opportunities for Lumia and Soft World

-0.61

Correlation Coefficient

Lumia  Soft World

Excellent diversification

The 3 months correlation between Lumia and Soft is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Lumia and Soft World International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Soft World International and Lumia 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 Lumia are associated (or correlated) with Soft World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Soft World International has no effect on the direction of Lumia i.e., Lumia and Soft World go up and down completely randomly.

Pair Corralation between Lumia and Soft World

Assuming the 90 days trading horizon Lumia is expected to under-perform the Soft World. In addition to that, Lumia is 4.86 times more volatile than Soft World International. It trades about -0.25 of its total potential returns per unit of risk. Soft World International is currently generating about -0.13 per unit of volatility. If you would invest  12,750  in Soft World International on October 26, 2024 and sell it today you would lose (400.00) from holding Soft World International or give up 3.14% of portfolio value over 90 days.

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

Lumia  vs.  Soft World International

Lumia

Risk-Adjusted Performance

9 of 100

OK

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

Soft World International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Soft World International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Soft World is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Lumia and Soft World

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

The idea behind Lumia and Soft World International 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.