Correlation Between Lumia and IShares Core

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

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

Diversification Opportunities for Lumia and IShares Core

0.6

Correlation Coefficient

Lumia  IShares Core

Poor diversification

The 3 months correlation between Lumia and IShares is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Lumia and iShares Core MSCI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Core MSCI 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 IShares Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Core MSCI has no effect on the direction of Lumia i.e., Lumia and IShares Core go up and down completely randomly.

Pair Corralation between Lumia and IShares Core

Assuming the 90 days trading horizon Lumia is expected to generate 56.95 times more return on investment than IShares Core. However, Lumia is 56.95 times more volatile than iShares Core MSCI. It trades about 0.04 of its potential returns per unit of risk. iShares Core MSCI is currently generating about 0.1 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 Together
Strength	Significant
Accuracy	96.09%
Values	Daily Returns

Lumia  vs.  iShares Core MSCI

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.

iShares Core MSCI

Risk-Adjusted Performance

0 of 100

Insignificant

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

Pair Trading with Lumia and IShares Core

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

The idea behind Lumia and iShares Core MSCI 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.