Correlation Between Lumia and SG Capital

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

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

Diversification Opportunities for Lumia and SG Capital

-0.49

Correlation Coefficient

Lumia  SG Capital

Very good diversification

The 3 months correlation between Lumia and SGC is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Lumia and SG Capital PCL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SG Capital PCL 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 SG Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SG Capital PCL has no effect on the direction of Lumia i.e., Lumia and SG Capital go up and down completely randomly.

Pair Corralation between Lumia and SG Capital

Assuming the 90 days trading horizon Lumia is expected to under-perform the SG Capital. In addition to that, Lumia is 1.6 times more volatile than SG Capital PCL. It trades about -0.34 of its total potential returns per unit of risk. SG Capital PCL is currently generating about -0.14 per unit of volatility. If you would invest  116.00  in SG Capital PCL on October 27, 2024 and sell it today you would lose (12.00) from holding SG Capital PCL or give up 10.34% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Lumia  vs.  SG Capital PCL

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.

SG Capital PCL

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SG Capital PCL has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's fundamental indicators remain quite persistent which may send shares a bit higher in February 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Lumia and SG Capital

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

The idea behind Lumia and SG Capital PCL 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.