Correlation Between Lumia and Makita

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

By analyzing existing cross correlation between Lumia and Makita, you can compare the effects of market volatilities on Lumia and Makita 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 Makita. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lumia and Makita.

Diversification Opportunities for Lumia and Makita

0.15

Correlation Coefficient

Lumia  Makita

Average diversification

The 3 months correlation between Lumia and Makita is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Lumia and Makita in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Makita 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 Makita. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Makita has no effect on the direction of Lumia i.e., Lumia and Makita go up and down completely randomly.

Pair Corralation between Lumia and Makita

Assuming the 90 days trading horizon Lumia is expected to under-perform the Makita. In addition to that, Lumia is 4.47 times more volatile than Makita. It trades about -0.25 of its total potential returns per unit of risk. Makita is currently generating about -0.14 per unit of volatility. If you would invest  2,932  in Makita on October 26, 2024 and sell it today you would lose (102.00) from holding Makita or give up 3.48% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	90.48%
Values	Daily Returns

Lumia  vs.  Makita

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.

Makita

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Makita are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Makita is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Lumia and Makita

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

The idea behind Lumia and Makita 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.