Correlation Between Lumia and SP Funds

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

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

Diversification Opportunities for Lumia and SP Funds

-0.24

Correlation Coefficient

Lumia  SP Funds

Very good diversification

The 3 months correlation between Lumia and SPSK is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Lumia and SP Funds Dow in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SP Funds Dow 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 SP Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SP Funds Dow has no effect on the direction of Lumia i.e., Lumia and SP Funds go up and down completely randomly.

Pair Corralation between Lumia and SP Funds

Assuming the 90 days trading horizon Lumia is expected to generate 340.25 times more return on investment than SP Funds. However, Lumia is 340.25 times more volatile than SP Funds Dow. It trades about 0.12 of its potential returns per unit of risk. SP Funds Dow is currently generating about -0.04 per unit of risk. If you would invest  0.00  in Lumia on October 9, 2024 and sell it today you would earn a total of  145.00  from holding Lumia or generate 9.223372036854776E16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Lumia  vs.  SP Funds Dow

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.

SP Funds Dow

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SP Funds Dow has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, SP Funds is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Lumia and SP Funds

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

The idea behind Lumia and SP Funds Dow 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.