Correlation Between Lumia and Precious Metals

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

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

Diversification Opportunities for Lumia and Precious Metals

-0.51

Correlation Coefficient

Lumia  Precious Metals

Excellent diversification

The 3 months correlation between Lumia and Precious is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Lumia and Precious Metals Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Precious Metals 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 Precious Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Precious Metals has no effect on the direction of Lumia i.e., Lumia and Precious Metals go up and down completely randomly.

Pair Corralation between Lumia and Precious Metals

Assuming the 90 days trading horizon Lumia is expected to under-perform the Precious Metals. In addition to that, Lumia is 3.35 times more volatile than Precious Metals Fund. It trades about -0.34 of its total potential returns per unit of risk. Precious Metals Fund is currently generating about 0.25 per unit of volatility. If you would invest  3,405  in Precious Metals Fund on October 27, 2024 and sell it today you would earn a total of  269.00  from holding Precious Metals Fund or generate 7.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	90.48%
Values	Daily Returns

Lumia  vs.  Precious Metals Fund

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.

Precious Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Precious Metals Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Lumia and Precious Metals

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

The idea behind Lumia and Precious Metals Fund 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.