Correlation Between Lifeway Foods and Chiba Bank

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

By analyzing existing cross correlation between Lifeway Foods and Chiba Bank, you can compare the effects of market volatilities on Lifeway Foods and Chiba Bank 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 Lifeway Foods with a short position of Chiba Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lifeway Foods and Chiba Bank.

Diversification Opportunities for Lifeway Foods and Chiba Bank

-0.45

Correlation Coefficient

Lifeway Foods  Chiba Bank

Very good diversification

The 3 months correlation between Lifeway and Chiba is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Lifeway Foods and Chiba Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chiba Bank and Lifeway Foods 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 Lifeway Foods are associated (or correlated) with Chiba Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chiba Bank has no effect on the direction of Lifeway Foods i.e., Lifeway Foods and Chiba Bank go up and down completely randomly.

Pair Corralation between Lifeway Foods and Chiba Bank

Assuming the 90 days horizon Lifeway Foods is expected to under-perform the Chiba Bank. But the stock apears to be less risky and, when comparing its historical volatility, Lifeway Foods is 1.04 times less risky than Chiba Bank. The stock trades about -0.13 of its potential returns per unit of risk. The Chiba Bank is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  745.00  in Chiba Bank on September 29, 2024 and sell it today you would lose (10.00) from holding Chiba Bank or give up 1.34% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Lifeway Foods  vs.  Chiba Bank

Lifeway Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lifeway Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Lifeway Foods is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Chiba Bank

Risk-Adjusted Performance

2 of 100

Weak

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

Pair Trading with Lifeway Foods and Chiba Bank

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

The idea behind Lifeway Foods and Chiba Bank 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.